On Wednesday 4th February, His Grace the Archbishop of Canterbury, Justin Welby delivered a speech on the 'The Good Economy' and priorities for reconnecting wealth creation with social justice.
The event also featured a panel discussion with some of Britain's leading thinkers on how we accelerate a consensus for reform.
Watch the full speech on "The Good Economy" by His Grace the Archbishop of Canterbury, Justin Welby:
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Watch the event online: The whole event is now available to view free of charge on-demand here.
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The Good Economy
COLLECTED DISCUSSION PAPERS
Wednesday 4th February
A series of papers published by the APPG on Inclusive Growth including the keynote speech on "The Good Economy" by His Grace the Archbishop of Canterbury.
Recently experts from a leading group of cross party think tanks have been outlining their agenda for inclusive growth. These papers have been brought together along with a speech by Liam Byrne MP from June 2014 which launched the All Party Group and the Archbishop's speech on "The Good Economy" itself .
INDIVIDUAL PAPER SUMMARIES:
|Discussion Paper #5:
Trading Our Way to Growth
By Alastair Reed, Policy Researcher, Policy Network
Tuesday 3rd February
There has been remarkable progress since the second world war in opening up markets and increasing trade. This has increased prosperity around the world, and lifted millions out of poverty. Trade is now central to the UK’s economic prosperity. Exports are worth £515bn directly to the UK economy each year, and inward investment adds around £56bn. Both help create significantly more throughout the wider economy.
However, the popular and political support that sustained the project to promote global trade has faltered since the financial crisis. Globalisation has contributed to vast increases in inequality. While competition between national governments has all too often led to the detriment of employment rights and progressive tax systems, in a ‘race to the bottom’ to attract companies. Both have been seen in a harsher light as wages at the bottom and the middle have stagnated.
A return to the level of protectionism of the mid-20th century seems unthinkable. Nonetheless, the surge in support for populist parties across Europe has challenged the political mainstream to deliver more inclusive growth. As the economist Larry Summers recently commented when launching the findings of the Inclusive Prosperity Commission: “there is little hope for integration and co-operation if it is seen as benefiting a global elite”.
The UK’s long-term performance on trade will be significantly influenced by major policy areas such as education, skills and training, and innovation. In an increasingly knowledge-driven global economy, the returns to these social and economic investments will only increase. The long-term productive potential of the economy should be considered when attempting to balance fiscal budgets, prioritising investments in growth-enhancing areas. Support for exporters and also needs to be improved, and crucially built around institutions that survive for the long term, beyond parliamentary cycles.
But this is not enough given people’s concerns. New forms of social investment and protection are required to enable people to capitalise on the opportunities created by more open markets and technological breakthroughs – the two forces shaping the global economy. In particular, the decline of secure and long-term employment – a phenomenon that the Economist recently described as “workers on tap” – should be addressed where it is exploitative but enabled where welfare states can give people greater certainty over their income.
The UK also stands at a key juncture with regard to four highly contentious issues: bilateral trade deals; membership and reform of the EU; aviation capacity; and immigration. Building a progressive and internationalist consensus on these issues could alter the long-term trajectory of UK trade.
|Discussion Paper #4:
Employment, Skills and Growth
By Emran Mian, Director, Social Market Foundation
Monday 2nd February
While the return of economic growth to the UK has been coupled with high levels of job creation, levels of pay – linked to low productivity growth – remain a big issue. One in five of all workers in the UK are now in low pay. This is high by international standards and it has stayed high for a long time. Of even greater concern than the mere numbers in low pay, is the fact that a large proportion is stuck in low pay. In recent work, we calculated that some 2.9m workers in the UK start off in low pay and remain in low paid work for at least a year.
This lack of mobility means that being in work often does not offer a route out of poverty. Equally, because talent in parts of the workforce remains under-utilised, it undermines the productivity of the UK economy. UK productivity (in terms of output per hour) was 16 percentage points below the average for the rest of the major industrialised economies in 2012; and 24% behind comparators such as France and Germany.
The UK cannot address its low pay problem without addressing this productivity shortfall. Our research makes the case for adopting an approach that would encourage firms to up-skill those stuck in low pay without additional costs to the public purse. A number of schemes – including the Youth Contract – attempt to use projected savings to the Exchequer to achieve specific goals on employment and wage levels. There is a strong argument for using the same principle to invest in the skills and productivity of those stuck in low pay, and specifically those who typically receive less support from government, namely those over the age of 24.
While the recognition that the UK has a problem with high numbers of people in low pay has been growing, the value of continuous employment has had less attention, though this is changing. We have already observed that pay growth is limited even as the economy has returned to growth after the Great Recession; yet employees in continuous employment do better than others.
These employees are likely to have a stronger bargaining position. Equally their productivity may increase as they become more attuned to their work, either as a matter of course or because the firm has provided training. Over time they may be expected to move to roles within the firm that are ever closer to an optimum fit for their skills and aspirations.
All that said, observing the benefits of continuous employment is much easier than adopting policy that leads to more of it. Our paper explores some ways in which policy makers could make a difference, e.g. through linking incentives for creating new jobs to the duration of employment offered and helping to create more employee-owned businesses.
|Discussion Paper #3:
Growth and inclusion in the internet age
By Eddie Copeland, Head of Technology Policy Unit, Policy Exchange
Friday 30th January
The conventional wisdom goes that thanks to the internet, opportunities that were once the preserve of the privileged few are now open to all. Education is no longer about who can afford to go to the best schools when everything from Codecademy to Harvard University lectures are available for free online. You can start an internet business from the comfort of your bedroom for less than £100. Information that once would have taken hundreds of trips to libraries and research centres to collect can be accessed in seconds. Culture – both high and low and in all its forms – is accessible 24/7. In theory, therefore, the internet is the ultimate field-leveller, and a powerful tool for increasing social mobility.
But are these opportunities really open to everyone?
BEYOND FIRST STEPS
Policy discussions about the social impact of the internet tend to focus almost entirely on the first step: getting people online. This work is vitally important: those who are digitally excluded are also most likely to be socially excluded, disabled, older, and/or living in social housing. But the debate needs to move forward to ask: once people are online, how do we ensure everyone can benefit?
Politicians – often used to addressing the dangers of the web – need to match their caution with raising the profile of the internet’s positive potential. It is good for labour mobility, as people can find out about jobs beyond their immediate area or have the chance to work from home. It is good for saving money, as the average family can be £560 a year better off by shopping and price comparing online. The poorest can now access interest rates and investment opportunities (thanks to sites like Seedrs and Funding Circle) that previously required a six-figure bank balance. From left to right on the political spectrum the internet should be a good news story that deserves strong advocates.
But there must be more than rhetoric.
Firstly, we need to develop the most competitive broadband and mobile markets to keep prices low and ensure that cost is never a barrier to getting online. Policy Exchange has previously argued that the government’s role should be to focus on broadband coverage rather than speeds. That remains important to ensure opportunities are brought not just to cities but to rural communities as well.
Education plays a vital role. All parties must commit to providing the support and resources needed by schools to make a success of the new Computing curriculum, which was introduced in September 2014. For adults seeking to re-skill after redundancy, none should be left unaware about what being online offers them in terms of learning, access to networks and jobs. Welfare-to-work providers should ensure that candidates have at least the basic IT skills needed to apply for jobs online.
As new business models arise as part of the so-called Sharing Economy, politicians need to ensure that we maximise the best aspects of digital disruption. Harnessed well, people from all walks of life could help supplement their income by hiring out their dead space, time and resources, making them more financially independent, and potentially encouraging more entrepreneurial behaviour. At the same time, policymakers must be alert to the risks as labour markets are disrupted by new innovation. As computing, artificial intelligence and robotics changes the nature of the workplace, everyone will need to be comfortable with using technology and have the skills to be able to adapt and thrive.
Perhaps one day the distinction between the offline and online worlds will become redundant. But for now, politicians have a role to play in making sure that biases that exist in the former do not permeate the latter. The internet is a gift for politicians of all sides – the most powerful instrument of social mobility – and its resources are virtually free. All parties should commit to putting the right measures in place to use it to full effect.
|Discussion Paper #2:
The role of finance in inclusive growth
By Tom Papworth, Associate Director, Centre Forum
Thursday 29th January
The 21st century has so far delivered seven years of plenty followed by seven years of famine. The first seven years were a period of easy credit and rapid but unsustainable growth. Since 2007 we have witnessed a tightening of personal and (especially) business credit and sluggish growth. Meanwhile the financial services sector remains shaken by the global financial crisis and has yet to complete the widely-demanded process of structural reform.
How the financial services sector can ensure that individuals and businesses are able to access the capital they need in a manner that fosters growth without risking another crisis is a broad topic. How the sector can promote increases in employment, productivity and wages, so that everybody in society benefits, could fill several reports. Here we concentrate on what can be done to help small and medium-sized enterprises (SMEs) access growth capital and so create jobs and wealth.
We find that SMEs, and especially a small number of medium-sized enterprises with high growth potential, are responsible for a disproportionately high number of movements from worklessness to employment, and are more likely to employ the very groups that we are most eager to “include” in growth. At present, the growth of these firms is constrained by difficulties accessing the appropriate forms of capital in the sums needed.
Bank finance needs to be more competitive; either by breaking up existing behemoths (if the CMA rules that the level of BCA concentration is uncompetitive and the result of market failures) or simply by relaxing rules that prevent new entrants into the banking sector (itself a much-needed reform) and encouraging more aggressive competition for BCAs.
But the government must also address the artificial fiscal imbalance that tilts both firms and investors towards debt rather than credit. The result of this “bias against equity” is that UK economy is already over-leveraged, and firms find it harder to attract the type of investment that involves risk sharing and a deep commitment to making a success of the company in the long term. This could be achieved by ending the quadruple-taxation of equity (for example, by scrapping Stamp Duty) or by capping the tax-deductibility of debt (as many other European countries do).
Either way, this would strengthen capital markets and reduce the over-indebtedness of UK firms while facilitating greater access to growth capital and so creating jobs and opportunities for the most marginalised groups in society.
|Discussion Paper #1:
Inequality, Growth & Prosperity
By Professor Brian Nolan of the Institute for New Economic Thinking at the Oxford Martin School
Wednesday 28th January
Income inequality has increased substantially in many OECD countries over recent decades, and debates about the impact this may be having have often focused on the (actual or potential) effects on such social outcomes as poverty, health and health inequalities, family structures, crime, or trust and social cohesion.
Even before the onset of the financial crisis and recession, though, rising inequality is now also coming to be seen as directly relevant to macroeconomic performance. It may have fuelled household debt and fed into the toxic combination of reckless lending, real estate bubble and financial innovation that brought the banking sector to the edge of the precipice in 2008. It may be serving to dampen recovery through its impact on aggregate demand, since the wealthy have a relatively low marginal propensity to consume. It may be centrally implicated in the failure to generate sustainable growth and rising prosperity that benefits ordinary working families even before the crisis, constraining investment in both physical and human capital and representing a serious threat to long-term growth and prosperity.
As a recent IMF study noted, inequality can undermine progress in health and education, cause investment-reducing political and economic instability, and undercut the social consensus required to adjust in the face of shocks, and thus reduce the pace and durability of growth, and redistribution may have a positive rather than negative impact on growth. This also has implications for how one thinks about the sustainability of particular levels of taxation: the notion of a simple ‘tipping-point’ beyond which the net impact on the economy of increasing taxes and spending will be negative is not a particularly helpful one.
While current concerns are primarily focused on the aftermath of the crisis and pace of recovery from it, with real incomes for middle and lower income households in the UK lower than they were a decade ago while the wealthy have continued to prosper, understanding the complex interactions between inequality and growth may well hold the key to framing policies with the capacity to deliver long-term growth and widely-shared prosperity for a country like the UK.