In this piece, Professor Sayantan Ghosal of the University of Glasgow discusses the economic forecast for 2024 and makes the case for fundamental reform and a new ‘economic bill of rights’ in the UK and globally.
The Case for Fundamental Reform
“True individual freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made.”
Franklin Delano Roosevelt
“We had all the momentum; we were riding the crest of a high and beautiful wave. . . . So now with the right kind of eyes you can almost see the high-water mark—that place where the wave finally broke and rolled back.”
Hunter S. Thompson
The World Bank has forecast a slowdown in growth between 2021 and 2024 which is on course to be twice that of the period between 1976 and 1979. Recovery from stagflation will be painful, with steep increases in interest rates and recession in high-income countries accompanied by sovereign debt crises in LMIC’s (Low-or-Middle-Income Countries) with vulnerable populations most badly affected. Such a state of affairs not only reveals the inequality at the heart of the global financial architecture but also leads to too little debt being restructured too late (Ghosal and Thomas (2023)). Meanwhile, events (the Middle Eastern crisis, the Ukrainian crisis) are unlikely to counter the forces driving rising energy and food prices. A high rate of inflation and interest rate (by recent standards) will continue to persist with no obvious end in sight. In the background, there are underlying secular trends that exert downward pressures on productivity growth. The impact on productivity of recent waves of innovation has been limited compared to earlier waves of innovation.
In high-income countries such as the UK, the response to rising inequalities has been a backlash against globalization and immigration by sections of the population, a drift from democracy to “anocracy” (not just in OECD countries but elsewhere in the Global South), increasingly limited appetite for strengthening global cooperation with a shift to nationalism and regionalism. Evidently these trends have potential downsides in the efforts to limit the damage of climate change, a point emphasized by the AR6 reports of the IPCC, with LMICs more than likely to suffer greatly. Given current trends, by 2030, 40% of children, living primarily, in LMIC settings, will be “learning poverty” as a recent report by the World Bank points out.
Broadberry and Wallis (2017) show, in a study using annual data from the thirteenth century to the present, that improved long run economic performance has occurred primarily through a decline in the rate and frequency of shrinking. Tainter (1988) in his book on “The Collapse of Complex Societies” shows how the (marginal) benefits from increasing complexity decline while the (marginal) costs increase. By destroying accumulated capital, Scheidel argues that violence, primarily via wars and pandemics, is the great leveller; in contrast, policy-driven redistribution has had a much lower impact in reducing inequalities. In all three studies, the focus is on adverse structural/environmental/technological/demographic change in the face of rising inequalities, intra-elite conflict, the collapse of political institutions that internalize relevant externalities reflected in the rising incidence of conflict/warfare. Moreover, the cost of shrinking, the collapse of complex societies and mass violence is inevitably borne by the most vulnerable groups locally, nationally and globally.
Both the main political parties in the UK accept the fundamental tenets of globalisation, technological change and deregulation. They both offer different versions, one slightly to the left of the other, of a managerial capitalism where taxes from a marketized system are used to sustain and, where possible, expand public services and the welfare state and redistribution within national boundaries.
Populists have primarily mobilised voters on low to middle incomes working in skilled or semi-skilled jobs in industry and services or running small businesses – plus pensioners. They have seen their incomes and prospects stagnate; stable jobs in manufacturing replaced by lower-paying, less stable ones in services; and their access to welfare become restricted – and even contested – following the financial crisis. This has stoked their opposition to mass immigration, political correctness and reckless banks and corporations. They increasingly believe the welfare state shouldn’t give special treatment to minorities or the “undeserving poor”. They are patriotic both for cultural reasons and because they believe the nation state can protect them against the excesses of globalisation and technological change.
The need of the hour is an updated “Economic Bill of Rights” (Franklin Delano Roosevelt’s message to Congress on the State of the Union, 11th January, 1944). Some of the rights articulated in that speech remain relevant today such as the right to a useful and remunerative job, the right to earn enough to provide adequate food and clothing and recreation; the right of every family to a decent home, the right to adequate medical care and the opportunity to achieve and enjoy good health, the right to adequate protection from the economic fears of old age, sickness, accident, and unemployment and the right to a good education; the right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.
Notice that, as articulated, such a bill of rights pertains to the current citizens of a specific country (originally the US). Of course, it remains relevant for any country but, ideally, such a bill of rights of rights, should be global in scope and incorporate sustainability concerns. But, even on its own terms, limiting attention to the citizens of a country such as the US or the UK, the fact that after nearly 80 years of sustained growth in per capita incomes and technological change, such issues remain unresolved is indicative of the magnitude of policy failure by successive governments in these high-income countries.
There is a narrow window to seize the opportunity for fundamental institutional reform that puts human vulnerability, dignity, and freedom at its core, but entrenched interests will resist, and old intellectual habits die hard. There is a great hunger and potential for change. Without a reconfiguration of the institutional foundations of the current economic order, the opportunity to put the UK economy (and the broader global economy) on a sustainable, equitable, stable footing could be lost.
About the author
Sayantan is Professor of Economics at the Adam Smith Business School and Dean of Interdisciplinarity and Impact at the College of Social Sciences. He was Professor of Economics at the University of Warwick from 2004 to 2013 where he was Research Director of the ESRC-funded Centre for Competitive Advantage in the Global Economy (CAGE). He also has a PhD from CORE, Universite Catholique de Louvain under the European Doctoral Program in Quantitative Economics.
Image credit: Yaopey Yong, Unsplash