I don’t normally read speeches, but this time I will make an exception. There are loads of statistics here, which I will never remember. When it comes to Northern Ireland, I think we need to make sure we are on firm factual ground – too much of our discourse is based around opinions and prejudices.
As I have frequently complained to people here, while evidence-based policy-making is favoured in much of the world, we tend to have prejudiced-based policy-making. Plus the manipulation of evidence to argue for pre-determined policy preferences.
How Can We Build a Fairer Economy?
When I was a young adult I assumed that we would continue to see progress during my lifetime. When I was born, the welfare state was young, so was universal education and the NHS. It was time of optimism.
Events of recent years make me challenge my own assumptions. Much of the blame has to be placed on Margaret Thatcher. Not just her attempt at destroying the trade union movement, but also the Big Bang reforms of the City of London. The ‘financialisation’ and deindustrialisation of the economy – along with privatisation – opened the way for a new culture of exploitation. And massive levels of unaffordable and unsustainable personal debt.
The Thatcher reforms also opened the way to a second ‘big bang’ – what is now called the Great Recession, when the economy went pop in 2008. That was what financial engineering led to, along with deregulation of the financial sector. Instead of making money from making things, the wealthy made money from making money. We had the casino economy.
Without doubt, it was the banks that were responsible for the Great Recession, along with the politicians who allowed the banks and hedge funds to be weakly regulated. Our governments’ collective response to this has been to reduce regulation and allow the super wealthy to become super wealthier. Bizarre, but true.
Half the world’s wealth is now owned by just 1% of the population. And the richest 10% of people own 88% of the wealth. This trend of super wealth concentration has increased markedly in recent years.
According to the 2015 Forbes Billionaires Guide, there were 1,826 billionaires in the world at the beginning of this year. Just to emphasise, these guys – they are mostly guys – each own more than one thousand million dollars of assets. Net. Together they own more than $7trn of assets. That is about 3% or 4% of all the world’s assets.
A few years ago it was different. It 2007, Forbes reported there were 946 billionaires in the world.
So what has happened in that period to double the number of global billionaires? The main explanation is that the nominal value of some classes of assets has multiplied. Anyone buying into shares at the end of 2008 stood a good chance of generating a strong return over the last seven years. At December 2008, the FTSE 100 was at 4434. Earlier this year it went above 7000. That is higher than it was before the crash, even though the economy remains risky today.
Some of the super rich with spare cash speculated on the casino economy, buying shares at the low point at the end of 2008 and have produced more wealth for themselves.
Look, too, at the London property market. Average house prices have risen by 37.4% since the onset of the crash in 2007. They increased markedly during the recession. At the top end, they have risen much more. In Westminster, the most expensive borough, prices are now 230% of what they were in 2004.
Why is this? There are three factors behind this, I suggest. One is that the government artificially reflated the economy in the UK after the crash by boosting the property sector, through supported mortgage lending, while there was little house building. But the other factors are more global in character.
Dirty money has come into London, from China, Russia, Greece and Italy, for example, with proceeds from tax evasion and other criminality stored in top London properties as a safe haven.
The third factor is that Quantitative Easing in effect gave money to the super rich. QE enabled central banks to buy bonds from retail and investment banks. That money flowed into assets, driving up share and property prices. That is a global, artificial, reflating of the economy, which has been a major factor in the super rich getting dirty rich.
Meanwhile, what has happened at the bottom of the income scale? The least well-off have got even less well-off. Average incomes for those in work have only this year returned to their pre-crisis levels. In the public sector, average pay remains 4.2% below pre-crisis levels. Remember the phrase, ‘we are all in this together’? It was never true.
“Income inequality has fallen back to levels last seen one or two decades ago,” according to the Institute for Fiscal Studies.
Before incomes started to recover, an average childless family would have been about £40 a week worse off than immediately prior to the recession. That is more than £2,000 a year.
Between 2006/07 and 2011/12 UK average incomes fell by 7%. In Northern Ireland, they fell by 10%. The fall in Northern Ireland was greatest amongst those already on the lowest incomes, where it fell by 16%.
And then there is the issue of people reliant on benefits. The IFS estimates that reduced uprating of benefits plus the freeze means that government is saving £4bn, with cut of 8% in benefits in real terms between 2013 and 2020.
Northern Ireland will suffer more than any other part of the UK from welfare cuts. Over 100,000 homes here will lose more than £1,600 a year – as a result of changes to tax credits. The latest Budget takes more than £200m out of the NI economy this year, rising to £360m a year by 2019.
This is on top of the previous welfare cuts, which will take about £750m out of the system, assuming they are fully implemented. So together that removes around £1.1bn from the incomes of the poorest households a year – and removing it from localised spending in the economy. In addition to that, real terms cuts to public sector pay are also reducing the money in our economy.
So we can see that average and poorer households lost to a significant extent through the austerity measures. Meanwhile the super rich gained.
In the United States, one observer described this as the biggest redistribution of wealth in modern times. It was money transferred from low and middle income families to the super rich.
None of this was accidental, in my view. It is the deliberate impact of neo-liberal globalisation. And the impact is by no means over. Within the extension of largely deregulated international trade, it will be increasingly difficult for Europe to retain an expensive system of welfare, with free healthcare and free education, while competing against nations such as China and India that have no such costs.
Inequality presents a specific problem for Northern Ireland. We have an unequal society. This is not just about sectarianism. But the legacy of sectarianism remains in many different ways, though its character is changing.
Unemployment and poverty remain more common in Catholic than in Protestant areas. The highest levels of unemployment in Northern Ireland are in Derry, Strabane and West Belfast. In the 2011 census, unemployment was 50% higher amongst the Catholic population than the Protestant population.
It is reasonable to expect this to be different in the future – attainment amongst Catholic children is better than for working class Protestant children. Families who expected their kids to walk into jobs at a shipyard, for example, are now finding there are few jobs and no discrimination in their favour. It is a similar story in the police. The issue of low skills and poor qualifications amongst working class Protestant families is a very big problem today and a bigger problem in the future.
We also have a massively difficult challenge with economic inactivity. This is both an indirect result of poverty and a cause of poverty. Ignore what the First Minister says, this is not the result of our highly educated kids going into higher education. It is about working class families, with high levels of medically assessed disability, many adult carers and single parent families. It is also related to people with low skills having little expectation that they will be able to gain well paid work.
These factors restrict income opportunities, trap families into poverty, limit education at pre-school and school ages and create barriers to aspirations. Economic inactivity is perhaps our most serious problem. At the least it ranks with paramilitarism and politically instability.
The UK economic inactivity rate is 22%. It is 28% in Northern Ireland. That is nearly 3% higher than the next worst region, the North East. It is 10% higher than the South West of England.
Northern Ireland has the UK’s highest rate of economic inactivity. It has the sub-region with the highest unemployment in the UK. NI has the lowest average wages in the UK. In 2012, 1 in 4 people in work in NI earned less than £7.20 an hour. That is 173,000 people.
So how do we respond?
A few years ago I spoke with a permanent secretary and other senior civil servants. They continued to believe that Northern Ireland’s economy could create jobs by being low cost. I thought that was stupid then. With the introduction of a higher minimum wage, the idea is clearly obsolete.
We cannot compete on cost, so we have to compete on quality. But this is a real difficulty when we have the lowest rate of graduates, the smallest university sector and a further education sector geared to providing basic skills to kids who left school without them.
We have a massive job in addressing the skills deficit. But we won’t get anywhere unless we rejig our spending priorities to address this. The figures are horrendous. We have probably the most difficult challenge of any country in Europe in terms of upgrading our skills base. Yet this is hardly discussed in our political system.
In summary.
We have too few skills.
Insufficient investment.
With a low pay economy and too few people in work, we are not generating enough wealth internally to recycle.
And too much of our wealth goes out of NI – eg to GB, German and RoI retailers.
That broadly gives us three options.
Accept comparative poverty.
Continued/increased fiscal transfers from GB, which are drying –up.
Create an export-based services and manufacturing economy, with high value added.
Attract higher levels of inward investment.
This addresses, in part, the amount of money in circulation within NI.
There are broader issues about wealth distribution.
We need to debate globalised neo-liberalism and consider how to challenge it.
We need to challenge the concept, put forward last week by business secretary Sajid Javid that regulation is against consumers’ interests.
The crisis was caused by inadequate regulation, yet we are now globally dismantling regulation. The factory disasters in Bangladesh, as well as the collapse of banking, are symptoms of that.
So we need to support the regulation of industries, including banking. International trade agreements, including within the EU, need to be strengthened for workers’ and consumer protection.
Trade unions are under attack and need our support.
We need to raise aspirations and confidence amongst working class communities. We need to lift people’s expectations of what their lives can offer. We actually need to rebuild the concepts of solidarity and community, rebuild our political movements, not least by being effective with social media.
The building of more social housing, including through housing co-operatives, would be an effective way of stimulating our economy.
We need to argue the case for more co-operative businesses. I believe the move to much higher levels of self-employment can be aligned to co-operative enterprise structures that bring freelancers together.
Northern Ireland needs an industrial policy. We need to actually create wealth in Northern Ireland, not just rely on others’ wealth arriving here.
We need to retain more of our best people, which means expanding university provision.
If we have a new economic crisis – which is highly possible – then a different type of QE should be used, which buys bonds for infrastructure use, rather than creates liquidity for banks to use to drive up asset prices.
We need to tell people about the inequalities in our society and put the case for a fairer society. In Northern Ireland we need to recognise the failure of the governments in Northern Ireland, the UK and the Republic of Ireland to deliver the peace dividend that was expected.
Above all, we should encourage people to be angry at the state of affairs that the near collapse of the world economy has not only made most people poorer, but also made the very richest even richer.
Paul Gosling / 17 October, 2015