A combination of loose monetary policy and sustained wage deflation underpinned the Conservative’s economic recovery in the last parliament. These processes have consolidated rather than overcome weaknesses at the heart of Britain’s growth model, write Scott Lavery and Jeremy Green

Greem, Jeremy

Lavery, Scott

LSE Research Online

6/9/2015Quantitative easing and labour market restructuringunderline the ‘regressive recovery’blogs.lse.ac.uk /politicsandpolicy/quantitative-easing-labour-market-restructuring-and-the-regressive-recovery/A combination of loose monetary policy and sustained wage deflation underpinned the Conservative’seconomic recovery in the last parliament. These processes have consolidated rather thanovercome weaknesses at the heart of Britain’s growth model, write Scott Lavery and JeremyGreen. When David Cameron emerged from 10 Downing Street on the morning of the 8 th May, heproclaimed that he would lead a ‘one nation’ government – one whose guiding aim would be toensure that ‘the recovery reaches all parts of our country’.There was nothing particularly new in this rhetorical positioning. Indeed, in the early years of thecoalition government, one of Cameron’s most popular refrains was to state that ‘we are all in thistogether’, whilst the Chancellor, George Osborne, emphasised the need to ‘rebalance’ the UKeconomy both sectorally and geographically. In reality, over the past five years Cameron haspursued a distinctive ‘two nations’ governing strategy – one which privileges certain segments ofsociety whilst imposing discipline and retrenchment on others.In an article published recently in New Political Economy, we outline some of the distributional implications of thisprocess and argue that the transition from crisis to ‘recovery’ has in fact been underpinned by a distinctive dynamicof ‘regressive redistribution’: a process of state-led economic restructuring that has worked through two axes at thecentre of the recovery.The first axis focuses on Quantitative Easing (QE). The Bank of England opted to begin undertaking QE from March2009: injecting new money into the financial system by purchasing Treasury bonds from banks and institutionalinvestors. Crucially, the policy was encoded with distributional prejudices right from its inception: it was targeted atincreasing the wealth of asset holders in order to boost demand.While wage earners experienced an unprecedented period of decline in real earnings, asset-holders received ahuge wealth boost from the Bank’s monetary policy committee. Stock and bond prices rallied on the back of QE 1and 2, with the Bank itself calculating that the gains in value amounted to around £600 billion. Picking winners in thisway has been central to establishing a two-track recovery where asset-holders prosper while wage earners suffer.The second axis of the regressive recovery was premised upon wage deflation. Workers’ real average earningsdeclined by 7.9 per cent four years after the onset of the recession, a trend which compares unfavourably againstthe recessions of the early 1980s and 1990s. While the Conservative party boasted of an ‘employment rich’recovery, in reality 77 per cent of net job creation between 2010-2013 was focused in ‘low pay’ sectors, where payfalls below £8 per hour.On top of this, there has been a regressive re-composition of the British labour market, with growing numbers ofprecariously employed individuals finding themselves involuntarily in temporary jobs. Wages might be risingmarginally once again, but this is taking place after a slump in real earnings which has not been seen since the19th Century. Indeed, wages are not set to rise to their pre-recession levels until at least 2020, suggesting that thisreally has been a lost decade for Britain’s low and middle income earners.This combination of loose monetary policy and sustained wage deflation underpinned the Conservative’s economicrecovery in the last parliament. The problem is that these processes consolidate rather than overcome weaknessesat the heart of Britain’s growth model. Firstly, they are likely to contribute further to a declining ‘wage share’ – the1/2proportion of overall economic output which goes to wage earners. This is potentially destabilising as it can lead toshortfalls of aggregate demand which in turn encourages high levels of private indebtedness throughout society.Secondly, the further concentration of wealth at the top end of society – in part sustained by low interest rates butalso ratcheted-up through QE – creates a further glut of income and wealth at the upper end of the incomedistribution. This can again create demand problems as wealthy asset-holders have a lower propensity to consumethan low-middle income earners. Long-standing distributional disparities which weaken economic potential andwhich entrench social inequities have therefore been consolidated over the past five years.The Conservative’s programme for the next parliament should be understood in this context. Now with an outrightmajority – and unencumbered by the politics of coalition – the Conservatives look set to consolidate the regressiverecovery further. As the IFS have shown, 1.1 million public sector jobs look set to go between 2010/11 and 2019 oncurrent spending plans. Partly in preparation for this, the Conservatives are already pushing through legislationwhich will further curtail trade union power by imposing minimum thresholds on turnout for industrial action. This willfurther curtail the capacity of workers to secure wage increases and protect their conditions in the years ahead. Inaddition, the £12 billion of welfare cuts will primarily hit the poorest hardest; a process which is likely to furtherentrench inequality and increase levels of poverty throughout society.Continuing to restore growth through these policies will ultimately entrench a more deeply divided and unequalsociety than post-war Britain has ever experienced. A recovery built upon these foundations is not only extremelyregressive, it is also hugely unstable. The crisis of the Labour Party has dominated the aftermath of the election, butit may well prove that a further economic crisis will be the longer-term result of extending Cameron’s regressiverecovery.Note: This article gives the views of the authors, and not the position of the British Politics and Policy blog, nor of theLondon School of Economics. Please read our comments policy before posting.About the AuthorsScott Lavery is a doctoral researcher at the Sheffield Political Economy Research Institute(SPERI) at the University of Sheffield. His research focuses on the uneven development of Britishcapitalism under New Labour and in the post-crisis period. Jeremy Green is Honorary Research fellow at SPERI and a Lecturer in Politics at the School ofSociology, Politics and International Studies at the University of Bristol. His research focuses on thepolitical economy of Anglo-American development and the politics of central banking.  2/2

Quantitative easing and labour market restructuring underline the ‘regressive recovery’

Abstract

Similar works

Full text

Available Versions

LSE Research Online

Enlighten