We all know the clichés about our generation, who have been christened ‘millennials’ by policy geeks. We whinge. We whine. We never shut up about how our parents and grandparents stole everything from us. We may go too far sometimes, but the bottom line for us is a future where we will earn less than our parents did over the course of our lives, unless something starts going seriously right in our society. There are three principal reasons for this: low productivity, a phenomenon known as ‘decoupling’ and yes, housing costs. Britain has a hopeless record when it comes to productivity, lagging significantly behind the French, Germans and Americans. This isn’t due to our fondness for tea breaks, it’s rather more due to the financial crisis and the broader structure of the British economy vis a vis other countries.
competition from emerging economies is bringing immense pressure on those ‘just about managing.’
Productivity has flat-lined since the crisis due to credit restrictions by banks that have led to less investment. In addition, our economy is a lot more flexible than those of our neighbours. We have fewer restrictions on hiring and firing in Britain, which means more jobs for less pay. A good example of this is online delivery culture, which is less prevalent in France and Germany because there are more restrictions.
It’s not just poor productivity that is causing problems though, since earnings have not risen at the same pace as the small productivity gains that have occurred. This is what ‘decoupling’ means. This phenomenon has occurred for a few key reasons. Firstly, unions are weaker, so wage improvements aren’t being pushed for as much as in the past. More important are changes brought about by globalisation. Huge amounts of competition from emerging economies is bringing immense pressure on those who are ‘just about managing.’
we will have paid £44,000 more on rent than the baby boomers did by the time we’re thirty.
On top of that, larger horizons have meant that businesses aren’t investing in their local communities and what Harvard economist Jan W. Rivkin calls ‘the commons’; tools such as investment in skills, research and education, that we all need in common if businesses are to flourish. And then there’s the big one, rent. According to the TUC, we will have paid £44,000 more on rent than the baby boomers did by the time we’re thirty. The basic reason for this is a lack of building. When the demand for something outstrips the supply, the prices start rocketing upwards- its basic economics. But why are so few houses being built? Part of the story is planning; the planning process in Britain is still very slow, complex and bureaucratic. Another is pesky residents associations, and others who bemoan the lack of housing until someone proposes to build near them. In other areas, though, the state has been too laid back. We are not building nearly as many council houses as we used to alongside allowing housebuilders to sit on land without building anything.
All in all, this is a pretty poor situation, and it doesn’t look like there’s an awful lot that can be done to address the problems–particularly ones like productivity that are fairly hard to pinpoint and have been labelled a ‘puzzle’ by policymakers. The standard answer to the productivity puzzle are dull slogans like ‘invest in skills,’ ‘create a better educated workforce’ and the like, which are much easier said than done. Similarly, decoupling is a pretty tough issue to address; it’s partly a result of globalisation that is hard to reverse without making heaps of people in the developing world poorer. Even housing, perhaps the simplest issue to resolve, is still riddled with obstacles and complexities.
building 250,000 homes a year by lifting borrowing caps on councils isn’t just common sense, it would be politically very savvy.
But it’s not all doom and gloom. There are many solutions to this pile of problems, so let’s draw attention to the ones the government could realistically implement now. The first and easiest is housebuilding. Building 250,000 homes a year by lifting borrowing caps on councils isn’t just common sense, it would be politically very savvy for the government. Theresa May would be showing that she isn’t just stealing Labour clothes only to put them back in the cupboard again, and like Macmillan before her she can make housing a central part of her message to the ‘just about managing.’
Secondly, a greater sense of intergenerational fairness is needed. It’s true that David Cameron made reckless pledges to the elderly in 2015, but this should be an issue where May breaks with her predecessor. Billions could be saved by scrapping payments to wealthy pensioners in Surrey, which could be spent on a whole host of policies that would help us, from tax cuts to help with rent. Thirdly, now is the time to become more productive if we are to remain competitive post-Brexit. Hammond could start by working towards a German-style apprenticeship programme, and by allowing the government to be more active at investing in industry. Yes, this may seem a boring approach and one starts to sound like a politician far too quickly. Bolder solutions are required over the long run. But they offer hope that help for our generation is actually on its way, rather than more empty promises, ought-to’s and should-have’s.