“Our economy should work for everyone,” said Theresa May in Birmingham last week. “But if your pay has stagnated for several years in a row and fixed items of spending keep going up, it doesn’t feel like it’s working for you.”
Quite. Regular readers will know that this is an optimistic column. We are witnessing a global embourgeoisement. Most people in most places have seen colossal advances in their standard of living. But not everyone, and not everywhere.
Have a look at the chart below, which shows the changes in income after 1988. The x-axis shows the population of the world by wealth. Poor African villagers are at the left, and you are at the right (the fact that you’re reading this article online tells me that).
The graph, compiled by Branko Milanović and Cristoph Lakner, shows the effects of the massive global enrichment that statisticians take for granted, but that Left-wing politicians still often deny. Almost everyone has become better off as previously closed economies in Africa and Asia have joined the global trading system. The exception, as you can see, is people around the 80th percentile, who correspond, broadly speaking, to unskilled workers in developed countries.
It’s fair to point out that not everyone accepts these findings. A new report for the Resolution Foundation by Adam Corlett shows that unskilled workers in Western countries have in fact seen rises in their living standards, and suggests that the dip around the 80th percentile reflects other factors, such as the falling populations of Japan and the former Communist states.
Even so, low-income families in Western countries, including the UK, have not been keeping up, at least not when assets are taken into account along with wages. It’s not true that the rich have got richer while the poor have got poorer; but it is true that (within developed countries if not globally) the rich have been getting richer at a faster rate than the poor have.
You don’t have to be on the Left to worry about that disparity. No government, no party that aspires to be national, should be unconcerned by the economic stagnation of parts of Britain. Most Tories flinched when Matthew Parris urged them to “turn their backs” on places like Clacton, which had annoyed him by voting UKIP. I’m sure the Prime Minister recoiled along with the rest of us.
She wants prosperity to spill over into these places, and rightly so. The question is how to do it. All Conservatives recognise the limits of state power. Governments are not terribly good at building cars or operating trains, and alleviating poverty is a lot harder than building cars.
Several pundits concluded that the Prime Minister was espousing Continental-style Christian Democracy – in other words, a more dirigiste and corporatist form of capitalism. I don’t see any sign of it. While Christian Democrats like to think of themselves as champions for the poor, their policies usually result in slower growth, higher unemployment and privileges for certain interest groups.
There are far more effective ways to make life easier for low-income families than through direct intervention. For example, it should be possible to lower the cost of living in a way that will benefit everybody, but will proportionately bring the greatest benefits to the least well-off.
For most households, the biggest items of expenditure are groceries, fuel, tax and housing. All these could be lower. When we leave the EU and the Common Agricultural Policy, we’ll be able to cut tariffs on non-EU agrarian imports. We can also disapply some of the EU’s energy boondoggles, which serve to redistribute wealth from ordinary families to wealthy landowners. Those two reforms, coupled with cheaper clothes if we opt out of the EU’s textile tariffs, could lower costs by a whopping £933 a year for the average family.
At the same time, we should continue to raise the tax threshold, a policy which, more than any other, has helped to rescue people from the squalor of dependency.
The Prime Minister has flagged up two further ideas which ought to boost the disposable incomes of working families. First, removing some of the restrictions on building new houses; and, second, ending the reliance on quantitative easing, which has had the effect of shifting money from wage-earners to rentiers. Again, good for her.
Every one of these policies will help the poor, not through bigger government, but through smaller government. Without state intervention, food will fall back toward world prices. Without EU directives, fuel bills will be cheaper. Without restrictive planning laws, housing will be more affordable. Without state manipulation of the currency, wages will hold their value. Raising the tax threshold benefits everyone, but chiefly the poor.
I’d add one more item to the list. Britain has some of the highest childcare costs in Europe – again, because of state intervention, specifically rules on the child-to-carer ratio that are more costly than their Continental equivalents. Again, we need only shift the rocks to let the grass grow.
This isn’t Adenauer-style Christian Democracy. It isn’t even Disraeli-style Tory Democracy. It’s – what’s the word? Oh, yes: conservatism.