‘You do not have to be a radical socialist to admit that since the financial crisis capitalism has failed to deliver the goods’
Millennials have been accused of killing many things—from doorbells to diamonds and department stores. They have brought down newspapers and TV and replaced them with Netflix and Twitter. Their penchant for avocado on toast is apparently responsible for declining home ownership.
There is one thing, however, into which millennials have breathed new life: the generation born between 1980 and the mid-1990s are responsible for the re-emergence of socialism.
It is easy to dismiss millennial socialism as nothing more than a fad, encouraged by celebrities, clever tweets and viral videos of festival goers chanting “Oh, Jeremy Corbyn”. But the roots are deeper—and should be of interest also to those who may count themselves as loyal supporters of the market economy.
You do not have to be a socialist to admit that since the financial crisis (and leave aside its origins), capitalism has failed to deliver the goods. The average British worker is no better off today than in 2007. Productivity has stagnated for the longest time since the invention of the lightbulb. Investment is stagnant. Unsecured household debt is at a record share of household income. Britain’s international position is dangerously unbalanced, with a current account deficit of 5.6 per cent of GDP.
Economists are at a loss to explain the malaise. Some argue that the rich world has entered a period of “secular” (ie long-term) stagnation. Whether due to a fall in the rate of technological change, demographic ageing or a slowdown in globalisation, we cannot expect our economies to grow like they did in the past.
The solutions proposed to these problems sound all too familiar. Cut taxes on the wealthy, deregulate financial markets, and shrink the state. So far, these policies have exacerbated the impact economic stagnation has had on working people, without solving any of the underlying problems. The verdict on 10 years of austerity is dismal. Since 2010, child poverty has increased by nearly two-thirds and rough sleeping has doubled. The number of people dying on NHS waiting lists has risen by 10,000 over the last five years. Home ownership is falling, and millennials are the first generation since 1881 likely to be worse off than their parents. Yet even the most ardent defenders of this approach cannot argue it has boosted competitiveness and productivity, or improved private or public finances.
It wasn’t always like this. During the period known as the Great Moderation, which lasted from 1990 to 2007, growth was high, inflation was low, and employment was buoyant. Policy-makers believed they had tamed the business cycle. Today, it is tempting to try to reconstruct that political economic model.
But it was precisely during this period of apparent stability that many of the problems that we now face first emerged. As I show in my book, Stolen: How to save the world from financialisation, from the 1980s onwards the UK entered a period in which financial extraction came to colonise all areas of economic activity. We allowed a credit bubble to swell, in which asset prices soared but productive capacity did not. Debt-driven corporate finance turned companies—including those running privatised public services—into inverted pyramids where the risk was borne not by shareholders, but by customers, workers and the taxpayer. Businesses were encouraged, sometimes forced, to dish out money to shareholders, while scrimping on investment and wages, and finding elaborate ways of escaping tax.
This model suits the super-rich. But it is bad for the rest of us. Billions of pounds worth of mortgages packaged into financial securities were sold on capital markets. In the absence of a significant increase in the housing stock, rising mortgage lending simply served to push up house prices.
That wealth effect made many middle-class people feel very well-off. Many opted to release the equity from their homes to purchase more assets, or simply to buy the cheap consumer goods made available by rapid globalisation. As a result, they may not have noticed that wage growth was falling until it was too late.
My book argues that dealing with these issues requires constraining the influence of big finance over the economy, and handing economic power back to working people. Regulating the banks is the first step towards containing the power of the City, preventing the re-emergence of another debt-fuelled financial crisis—and restoring public trust that the economy works for everyone, not just the spivs and sharks on the inside. In particular, public banks, common on the continent of Europe, should be used to direct investment into socially useful sectors. The state owns huge amounts of land, buildings and other assets. A People’s Asset Manager should manage and re-invest this, our collective wealth.
Critics will argue that these measures will sap the productivity and ingenuity of those who create wealth for everyone else. But in a financialised economy like ours, it has become increasingly obvious that many of the rich make their money from wealth extraction rather than wealth creation. The challenges we face—from rising inequality, to stagnant productivity, to climate change—require a radical shift in the status quo. If the political upheaval of the last decade tells us anything, it is that such a shift is long overdue.