The debate over growth in the U.K., always contentious, has recently become even more heated. Wages, economic growth, and economic opportunities have skidded to a halt this century (a period during which the U.K. was mostly inside, but is now more recently outside, the EU).
During the past two decades, the U.K. economy has joined that select group of economies around the world that are seeing poor to no economic growth, have increasing household distress, and, have seen an annual decrease in real wages (for the U.K., of some 0.3% per annum). The compounded result is that real average earnings in the U.K. are now 5% lower than they were in 2008.
Authoritative commentary in leading magazines has bemoaned that the West has fallen out of love with economic growth. there’s little rational analysis of the problem; one article simultaneously blamed left-wing politicians, right-wing “reheated Reaganism,” growth champions, NIMBYs, and overdemanding electorates. The possibility that Western European economies, in particular, may continue indefinitely in a downward direction isn’t taken seriously enough.
How did the UK, and other, similar countries get into this state? Is their current economic direction—low growth and stagnating wages, accompanied by an ever-increasing level of government expenditure, inevitable? Is the U.K. on its way back to having to live, possibly permanently, with the “British disease” of the 1970s: stagflation, unemployment, and social unrest?
If we look at the past thousand years of the U.K.’s history, we find that for many centuries after the Norman invasion of 1066, life for most Britons was a soul-destroying pattern of uniformity and conformity. A majority of the population was not free: about 10% of the population recorded in the Domesday Book were slaves and over 70% were serfs (the last serf was only freed in 1574).
Even after that, for most citizens, the job they were born into was the job they held for the rest of their lives. Wages stayed the same for generation after generation. The opportunity for self-improvement or advancement was, for most people, zero. The average life expectancy was 30.
And then, towards the end of the eighteenth century, there was a sudden, startling change that completely transformed possibilities and personal ambition for the average citizen. It was precipitated first by the Enlightenment, then the Scientific and Industrial Revolutions, and finally the emergence, on the back of these developments, of Capitalism. An explosion of industrial entrepreneurship drove the creation of new jobs across the economy, with major increases in the wage that employers could, and did, pay for a given job. Growing wealth and social mobility became the norm. Between 1800 and 1950, the average wage quadrupled; it quadrupled all over again during the following half-century. By the year 2000, the earning power of the average Briton was, in real terms, 16 times as much as it had been in 1800. Between 1900 and 2022, the number of jobs in the U.K. had doubled, from 16.7 to 33.2 million.
As a result of all this, the average citizen in the advanced economies has a dramatically changed conception of what they can expect to learn, experience, and achieve over their lifetime. In Western democracies, the generally held view has come to be that every citizen has the right, or at least a reasonable hope, to:
- Live up to eight or nine decades, mostly in good health.
- Fulfill themselves, by finding a career offering ever-increasing work responsibilities, challenges, and opportunities that stretch potential and improve life satisfaction Receive annually higher real pay, whether or not job responsibilities have increased —a function of productivity improvement, mostly brought about through investment of capital— and better working conditions.
- Have the opportunity to fulfill, over their working lives, their best possible personal potential in terms of life, health, achievement, prosperity, human relationships, and happiness.
And yet, over the past half-century, across Western Europe, including the U.K., the larger economies have seen a steady deceleration in economic growth—leading up to its disappearance in the past two decades. As a result of this decade-by-decade ever-slower growth, along with a growing population due to higher and higher immigration, the U.K. is now shockingly only just in the upper half of GDP per capita among OECD countries.
Addressing this problem, should we wish to do so, seems to have been made more difficult by several confounders: declining economic understanding among politicians, pundits, and the electorate; a return to social justice-style debates; the increasing demand for “equity” (equality of outcome) and redistribution; and eco-style arguments that condemn growth out of hand and that have led to frequent claims that our country’s economy should not grow at all or even that it should shrink. But the real problem, as academic studies from around the world have shown, and as summarized in my just-published book, is that these formerly successful economies have succumbed to their electorates’ demands for (first) more and more government. This has led to (second) greater taxation and has been accompanied by (third) larger and more pervasive regulation. All these can be shown to knock down the ability of a country’s economy to grow. Until we can shrink the state, reduce taxation, and lessen the burden of regulation, then economic growth will prove elusive.
Those arguing for growth believe it is not just something that is nice to have, but that it’s morally desirable and essential. Growth has brought enormous contentment and prosperity to the people of developed countries, citizens of developing countries that have embraced the capitalist approach, and, prospectively, to almost the entire world.
In the U.K., we all benefit hugely from the economic growth that took place since the late 18th century. But now, our economy seems to have lost its knack for growing. An understanding of the causes of economic growth seems to have disappeared from the economic agenda. Our main political parties, whether or not they claim to be pro-growth, initiate policies that are bemusingly anti-growth. Political movements—some pseudo-religious in their beliefs—preach that growth is bad, and must be stopped or preach social justice-style philosophies that, even if they do not overtly acknowledge it, effectively mean an end to any future growth. It seems, given the general levels of either indifference or hostility to economic growth, the case for growth now has to be remade anew with each new generation. My book sets out to do so.
This article has been adapted from Return to Growth: How to Fix the Economy, Volume One by Jon Moynihan (Biteback Publishing, September 2024).