Monday, 7 July 2014

Reflections on Economic Under-performance on Both Sides of the Atlantic

David Coates presents a fascinating piece on the economic underperformance of the British and US economy.

One of the most intriguing problems in any form of contemporary analysis – political or economic – is to judge whether contemporary trends are best read as a glass half-full or a glass half-empty. The events themselves rarely dictate which view should prevail: almost always the judgment call (and it is necessarily a matter of judgment, not a statement of fact) is the product of prior scholarship and reflection. Those thoughts came to mind when reading Terrence Casey’s recent and fascinating essay on “Britain’s ‘natural economic experiment’” posted on the British Politics Group Blog Site.[1] Terrence and I have long examined similar things to different effect. In the decade-long debate of varieties of capitalism, neither of us have been an uncritical advocate of co-ordinated market economies. Rather, and on the continuum of views that stretches from “neo-liberalism is still a viable growth model” to “a plague on both their houses since neither work,” Terrence is still arguing some version of the first[2] and I have long argued some version of the second.[3] Hopefully there is still value in the contrast – hence this.

The evidence that persuades me of the continuing weakness of neo-liberalism in both the US and the UK can only be illustrated in the space available here, but it certainly includes the following.[4] 

 The growth and competitiveness performance of both economies remains weak and unimpressive. The average annualized growth rate of the US economy between 1947 and 2013 was 3.2%. By contrast, the US economy actually contracted 2.9% in the first quarter of 2014; and its projected annualized growth rate for 2014 is just 0.1%. Meanwhile, having narrowly avoided a third-dip recession, the UK economy was still 3.3% smaller in mid-2013 than it had been in 2008. Both economies meanwhile carry persistent trade deficits of currently 2.3% (US) and 5.4% (UK) of their respective GDPs.

 The record on job creation and persistent unemployment is more troubling still. The US economy took until May 2014 to create the number of jobs it last saw immediately before the 2008 recession; and that still left a jobs gap of 7.9 million. As late as January 2014, the ratio of job seekers to available jobs in the US economy as a whole remained at just under 4 job seekers per job. The UK story is tragically similar. Though the UK moved its official unemployment rate down from 7.9% in 2010 to 6.8% in 2014, as late as 2012 the unemployment level there was at a 17 year high: and in the UK economy’s recently better performance on unemployment, fully one-fifth of the new jobs created have been part-time jobs, and nearly half of all the job growth has been the product of a move into self-employment. 

 General wage levels and living standards remain stagnant in both economies. In the UK, average wages in 2014 were still at 2004 levels, with no likelihood of their returning to their 2009 peak much before 2020.  Likewise in the US, wages for the bottom 70% fell between 2007 and 2012 and where jobs were regained, they occurred in sectors disproportionately prone to low pay. Currently a full 25% of jobs available in the US economy pay wages lower than the poverty level for a family of three.


 Poverty and Inequality has intensified on both sides of the Atlantic. Currently one American in seven lives in poverty. One American in three lives within one tranche of the poverty level for their size of family. Measuring poverty differently (at 60% of median income) the UK still had 22% of its children living in poverty in 2010, with 3.5 million children projected still to be there in 2020. There is a squeeze on both middle class incomes and general social mobility in both economies. In both, the link between productivity growth and wage growth characteristic of the first half of the post-World War II period is currently entirely broken.



Any pre-recession assertion of the inevitable superiority of Anglo-American ways of running capitalist economies now has a hollow ring.  Nor does the pattern of post-recession performance of either economy easily support the view that the route back to generalized prosperity across the advanced capitalist bloc as a whole is through greater public austerity and private sector deregulation. The parallel problems of more coordinated market economies do not in that sense vindicate their liberal market alternative. They suggest rather, as David Gordon among others has argued in another context,[5] that the route to generalized prosperity again is a route that still needs to be found. Finding that new growth model is indeed the central task of the age: for without it, a generation of young workers now entering both American and British labour markets will live out their maturity constrained by stagnation of Japanese-like proportions and longevity; and as they do so, their support for both democratic institutions and progressive politics is likely to wane.  If we want a future dominated by Tea Party politics on one side of the Atlantic and UKIP-like populism on the other, we can sit back and do nothing.  But if we do not, now is the key time to put on our thinking caps, and find a new program of reform that is neither neo-liberal nor corporatist in kind.

David Coates holds the Worrell Chair in Anglo-American studies at Wake Forest University, and has published widely on British politics. 



[2] Terrence Casey, “How Macroprudential Financial Regulation Can Save Neoliberalism,” British Journal of Politics and International Relations, Forthcoming. Available in Early View -- http://onlinelibrary.wiley.com/doi/10.1111/1467-856X.12042/abstract
[3] See David Coates, Models of Capitalism: Growth and Stagnation in the Modern Era. Cambridge: Polity Press, 2000.
[4] The data is presented more fully in the paper “Giants in Decline: The Shared Political Agenda of the Anglo-American Growth Model,” to be presented to the British Politics Group one-day workshop on Britain and America in Critical Perspective: Austerity, Uncertainty and Decline? Washington DC: August 27, 2014 (available from the author)
[5] Robert J. Gordon, Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds. NBER Working Paper 18315, August 2012: available at http://www.nber.org/papers/w18315

2 comments:

  1. A very interesting and concisely written piece which make some strong points. I would think that in the UK case one should look at employment as well as unemployment figures, the former often being more interesting. Some people only want to work part-time. As far as the annualised growth rate of the US is concerned, 3.2 per cent seems to me to be as much as a mature economy can achieve. I am sceptical about whether there is a generalized route to prosperity waiting to be discovered, particularly given intensified competition from emerging economies. What may be needed is an adjustment of expectations, never easy to achieve.

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  2. Terrence Casey21 July 2014 at 22:48

    I very much appreciate -- as I always do! -- David Coates' thoughtful critique of my earlier post. On many of the particulars, he and I agree. Recovery has been tepid. Employment growth is weak, particularly in the US, and the disconnection between wages and productivity raises the specter of wage stagnation even after generalized recovery. Again, we diverge on whether the neoliberal model is at all redeemable, me being more the optimist. For me the key question to David is this: If not neoliberalism, than what? He agrees that none of the other models of capitalism stand out as exemplars at the moment and seeks a “…a new program of reform that is neither neo-liberal nor corporatist in kind.” But what is that? It is not as if scholars, many deeply skeptical of neoliberalism well before the crash, have not had time to think long and hard about this. Yet that alternative remains just as ill-defined as did back in 2008. At about this distance from the Crash of 1929, Keynes published his general theory, a thoroughly articulated alternative to pre-Depression liberalism. Where is our 21st century Keynes? (Spoiler alert – it’s not Thomas Pikkety!) To be fair, far more political economists agree with David’s assessment of the flaws of neoliberalism than my perspective. Critiquing of neoliberalism and lamenting that “there must be some alternative” is not enough, though. I argue that it is high time for the critics of neoliberalism to coalesce around an alternative model and elaborate how and why this is likely to outperform a reformed neoliberal structure. Otherwise, our endeavors will become a political economy version of "Waiting for Godot".
    PS – Apologies for taking so long to respond. You caught me on holiday!


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