By Stewart Lansley

Growth is the new mantra. For Sir Keir Starmer, it’s his key ‘mission’, to be delivered through a boost to wealth creation and an enterprise economy. For decades, political leaders have been searching for the economic holy grail. Both Margaret Thatcher and Tony Blair promised wealth-creating entrepreneurialism. George Osborne talked of the ‘march of the makers’. Yet, on all these goals, Britain has a dismal record, with recent growth rates much lower than in the post-war decades and lower than in most other rich nations.

So is this focus the right strategy? Britain’s stagnant economy is also marred by excessive and rising levels of poverty and social distress, a towering wealth and income gap, flat pay and public services starved of resources.

This is a toxic mix, yet Labour has yet to say much about their roots and how to tackle them. Its dominant political strategy seems to be that without growth, little can be done on these wider fronts. No growth, no wealth creation, no progress.

In fact recent history shows that growth is far from the answer to rising rates of poverty and social frailty. In the last four decades, occasional spurts of growth have been captured disproportionately by the richest, while the public realm has been eroded.  Contrast the three post-war decades, when more than half the proceeds of growth were used to build Britain’s public services and social infrastructure.

In the last three decades, many post-war social gains have been reversed. After a century of improvement, life expectancy rates in the UK have been falling in deprived communities. Political alienation is widespread, with a rising gap between the electoral turnout of the richest and poorest groups since the 1980s. High concentrations of income and wealth have been a key driver of global warming. 

High levels of inequality and low investment are also key impediments of economic dynamism. In many ways, the pro-rich and anti-poor strategies of recent times lie at the heart of Britain’s broken economy as well as its fractured society. Rates of innovation and of investment, the quality of public and private infrastructure and of social support – key determinants of economic strength and social resilience  –  have been lower than in the post-war decades while lagging behind those of our competitors.

Central to the governing philosophy of recent times has been the line of ‘private good, public bad’. Yet business activity, too often aided by misplaced state policies, has been increasingly geared to rapid personal enrichment rather than long term wealth creation that boosts economic resilience and serves the common good.

Many large companies have been turned into cash cows for executives and shareholders. Boardrooms have adopted anti-competitive devices via a return of what the American heterodox economist Thorstein Veblen called, over a century ago, “market sabotage”. The rise of corporate extraction – which crowds out innovation that offers greater social value – has been a central driver of Britain’s low-wage, low productivity, poverty-ridden economy. These mechanisms have become key barriers to social and economic progress, including the right sort of growth. 

Far from the neoliberal promise of more competitive markets, recent decades have brought a consolidation of corporate power in key markets from banking to pharmaceuticals. Instead of boosting private investment, and improving wages, the rising profits of recent times have been siphoned off for disproportionate payments to shareholders (in share buy-backs and dividends) and executives. With UK corporations increasingly owned by overseas institutional investors, notably US asset management firms, little of this flow has ended up in UK pension and insurance funds and back into the domestic economy.

Starmer’s call for more wealth creation needs to heed the warnings of the early economists and their distinction between new wealth creation that brings added value for wider society, and ‘extraction’ or ‘appropriation’ that benefits an over-powerful few.  Appropriation was commonplace in the nineteenth century but less prevalent in the post-war years of greater regulation.

Today, it can be seen in the rigging of financial and product markets, the skimming of returns from financial transactions, and in the private equity revolution.  Many large publicly listed companies (from the AA, Top Shop, and Debenhams to Morrisons) have been taken over by consortiums of investors (or individuals) seeking fast returns, in many cases at the expense of long-term viability.  That revolution has now targeted key public services, including social care, once provided largely by public sector agencies, with significant proportions of public money ending up in the pockets of the new corporate owners.  

These trends have had a significant negative fall-out on the way societies function. Scarce resources have been steered away from meeting basic needs and maintaining social infrastructure to pay for the sybaritic lifestyles of the wealthiest. Hence the reappearance of what the American economist JK Galbraith once called “private affluence and public squalor”.

Compare Britain’s low level of social investment with a surging demand for private jets, luxury yachts and privately-owned islands. Scarce land that could have been used to build social housing has been swallowed up by luxury building that serve no social purpose but bring big returns for the property and construction industry.

There is a central contradiction at the heart of the economic strategies of both main political parties. The emphasis on growth alone, even if it could be delivered, is not the answer to Britain’s economic and social failures. It would not bring a stronger, fairer and more equal society without a simultaneous plan to tackle the malign impact of large chunks of modern business strategy. 

 Stewart Lansley is the author of The Richer, the Poorer, How Britain Enriched the Few and Failed the Poor, a 200-year history, Bristol University Press, a Council member of the Progressive Economy Forum (UK) and a Fellow of the Academy of Social Sciences. 

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