We Need a Government That Invests in People Not Tax Cuts
October 16, 2022
Who contributes more to economic growth – an engineer or a billionaire? A hedge fund owner or a teaching assistant? A doctor or an investment banker?
Kwasi Kwarteng has been sacked. Liz Truss is in competition with a lettuce to see which one lasts longer. But it’s not about the individuals, it’s about the economic model they’re pedalling.
All governments say they want growth. But why does growth matter? And is all growth equally good?
Growth can increase our standard of living. It can develop new technologies like computers and better medicines. But definitions of growth miss out what’s hard to measure. Pesky stuff like spending time with your family or safeguarding the environment. So economic statistics usually ignore that.
As a society we can choose what we do with the proceeds of growth. Let billionaires get richer, or invest in better free education? Invest in fossil fuels that trash our planet, or renewable energy to provide cheap power? Buy throwaway plastic fashion, or see live music, plays and comedy?
Neoliberalism is an economic model that proclaims the ‘market’ is king. If competition is allowed to run free, frolicking through the fields of wheat, then we all win. If a business does something bad, say neoliberals, consumers will stop buying their products – so there is no need for regulation. Markets, they claim, will self-regulate. If workers don’t like their job or their pay, they can get another one.
Did you spot the flaw in the theory? That’s right: it’s bollocks. It does not correspond with reality. As a worker, quitting your job leaves you unemployed and trapped in debt. You get higher wages in the same job by using collective bargaining power. Which is why neoliberals hate trade unions.
As a consumer, you get no choice about which water company to use. It’s almost impossible to buy from only ethical companies. The bad ones spend a fortune on greenwash and brand identity.
According to economic textbooks, companies make goods, sell the goods, then re-invest the profits. That still happens a bit – but like a mafia operation, the casino economy has muscled in, killing growth.
Rent seeking is where people get rich for owning something, despite doing nothing productive. Like the Private Finance Initiatives – PFI. Investment bankers stumped up the cash for £13 billion worth of hospitals. The National Audit Office calculated that public sector PFI repayments will cost us £199 billion until the 2040s. Too much NHS spending goes to billionaires instead of staff wages.
Share buybacks are another financial trick. Profitable corporations could invest in research & development, staff training, or higher wages. Or use those profits to buy its own shares, and cancel them. With fewer shares left, the dividend per share increases, and so does the share price. CEOs and boards get paid more if share prices rise. BP, Shell, Amazon, Apple, Glencore, Qantus all do it.
Shareholders have netted £440 billion above inflation since 2008, while wages have fallen £510 billion below inflation.
Real growth comes from investment in productive businesses. That’s our plan at the North of Tyne. Last Tuesday I visited Verisure at Quorum, near Four Lane Ends. They’re the first company I brought to the region. They make alarm and security systems and provide a real service people value. They look after their staff – now over 600 people.
On Thursday, I visited Thoughtworks – who we brought here last year. Their new office on Grey Street employs 36 people on good salaries, and will grow to 200. They make state of the art digital systems so everyone can benefit from the internet.
We need a national government that invests in people, not tax cuts. Better health. Better education. Eliminating poverty. Without skilled, healthy people with a good standard of living, there will be no growth. Austerity has wrecked growth and destabilised the public finances.
With the billionaire, their bank balance grows. With the engineer, the nation’s economy grows. With the craftsman who laid the bricks of the engineer’s house, the economy grows. With the teacher who educates the engineer’s kids, the economy grows. With the doctor who keeps the engineer and her family well, the economy grows. That’s real, robust, fair economic growth.