Here is an approximate transcript of the presentation Mark E Thomas made to the London Quakers’ Build Back Better Event on 24 October, 2020. We hope to have a video here soon.
Introduction to Whole Group
Good morning, everybody.
It wasn’t my plan to be doing this. Eight years ago, when I was running the strategy practice at PA Consulting Group, if you’d asked me what I would be doing today, I would probably have guessed that I would still be there, and be handing over my responsibilities to the next generation.
That’s not at all the way things turned out. One of my colleagues, who ran a very successful but very different part of the firm, advising public sector services in the defence and security space approached me with a question. He observed that we had a lot of high-level contacts in the private sector and wanted to know whether, working together, we could develop a similar network of high-level contacts in the public sector.
I said I didn’t know, but I did know what worked in the private sector – which was to pick a topic that should be of interest to CEOs in about two or three months time, to research it carefully, and then to invite them to a dinner to discuss it. They liked it because it gave them insights into an important topic which they hadn’t previously understood, and because they like networking with each other and with company chairman; and we liked it because in two and a half hours over dinner, you can begin to get to know people.
We decided to give it a try. The first topic we looked at was the Arab Spring, which had caught the Foreign Office, the Security Services and the other defence services very much on the back foot. We decided to investigate whether or not they should have been able to predict it.
At first glance, this is a silly question: the immediate trigger for the Arab Spring was when, just before Christmas 2010, a Tunisian street vendor called Mohamed Bouazizi set himself on fire in the town square in desperation at his treatment by the police. Within hours, riots had begun in Tunisia, and within 12 months, riots, uprisings and revolutions had spread across 20 countries. Nobody could have predicted that sequence of events.
But there’s a slightly deeper question: police brutality happens all the time, all around the world, sometimes with tragic results. But it doesn’t usually result in riots and revolutions. Should the FCO and the other services have been able to predict that these Arab countries were in such a fragile state that a tragic but relatively minor incident would be enough to trigger a revolution? It turned out that we could find a fairly simple model that had quite good predictive ability. Four factors – one of which was economic hardship – explained which countries were most at risk.
So that first event was successful, and we repeated them at six monthly intervals. One of the later events looked at the issue of rising inequality in the US and the UK. When we started to analyse the problem, I was shocked: I knew there was an issue, but I had no idea how serious it was. So I continue to look and to analyse the data, and the more I looked the more concerned I became. Eventually, in 2015, I decided that I had no choice: I should stop consulting and research and write the book 99% to demonstrate the scale of the problem, and also to set out the solution.
When the book was published, in August last year, working with just a couple of others, I set up The 99% Organisation to help drive policy change in order to end mass impoverishment. The organisation now has just under 800 members. Every one is a volunteer.
So that’s what I’m proposing to discuss with you in the session that follows: what happens if we carry on as we have been going, what impact might COVID have, what alternatives do we have and what actions do we need to take to build a world fit for our children’s generation to live in?
Presentation to Working Subgroup
Good morning again, everybody.
As I hinted in the plenary session, things were far from perfect before COVID struck. But of course, COVID has made things far worse – particularly for those who were already vulnerable. COVID is not an equal opportunity killer: it targets men more than women, the elderly more than the young and those with pre-existing conditions more than those who are otherwise healthy. It also targets those who are deprived economically and key workers on the frontline, which means it exacerbates existing social injustices.
And now there is a real risk that the government has lost control over the virus.
But in the interests of time, let’s assume that we manage the virus well and avoid a second spike. What would that mean for the economy?
The solid red line represents the estimates from the Office for Budget Responsibility. As you can see there’s been an enormous plunge in economic activity in quarter two, and they’re anticipating quite a sharp uptick in quarters three and four. The dotted red line indicates what would happen if we had growth at 4% per annum thereafter.
And the grey line shows, for comparison, what happened after the Global Financial Crisis.
So this is a rather curious picture – on the OBR projections, we are experiencing a far worse recession than the one after the Global Financial Crisis – but they are expecting a much more rapid bounce-back.
Is that what is actually going to happen? The answer is that nobody knows, not even roughly, because it depends so much on policy decisions.
If we had a committed market fundamentalist like Jacob Rees-Mogg setting policy, we would see a no-deal Brexit at the end of the year – which the government’s own estimates say would be extremely damaging to the economy – followed by savage cuts to public spending. That might produce a profile rather like the bottom of the grey area.
On the other hand, if we had a leader like Franklin D Roosevelt or Clement Attlee in charge of policy, we would expect some form of New Deal with much greater support both for business and for the population, and that might produce a profile rather like the top of the grey area.
The US New Deal introduced by Franklin D Roosevelt saw enormous public investment programs and job creation schemes, which is what started to end the Great Depression. In the UK, after the Second World War, Clement Attlee’s government followed the blueprint of the Beveridge report and invested to build the NHS and to construct the Welfare State. In both cases, the results were better for the economy overall, and far better for the typical member of society.
On the face of it, this looks like a no-brainer – why not go for the New Deal approach? Well the obvious question is what would happen to the debt?
Most of the data on this slide come from the Bank of England, which has compiled 300 years of economic history for the UK. And the very end come estimates from the Office for Budget Responsibility. As you can see the OBR is estimating that debt is around 100% of GDP.
Is that a problem? There are already many voices telling us that 100% is ruinous and that we need to prepare for another round of austerity. But that’s not what the rest of the data show.
In fact, 100% is not staggeringly high, it’s not even rather high, it is almost exactly the average level of debt that the UK has held over the last 300 years. There is no factual basis for the debt hysteria.
In fact, even if the debt went a long way above a hundred percent, there would still be no reason for hysteria. Just before the Industrial Revolution really took off, around 1820, debt to GDP was over 200%. Immediately before the Golden Age Of Capitalism (the post-war period 1945 – 1980) debt to GDP was over 250%.
These were the two most successful periods in the UK’s economic history. Very high debt is demonstrably not an obstacle to growth. And the growth itself reduces the rate of debt to GDP.
So I think you will hear a lot of noise about ‘ruinous levels of debt’ and the supposed ‘need to balance the books.’ Almost all of that will come from politicians and journalists; and almost none will come from serious economists in reputable universities – and now you can see the reason.
So we have a choice between a world of austerity or a New Deal style world.
What does that really mean for people?
Today’s median earner takes home just under £25,000 year. What will that figure be in 2050? Well of course it all depends what trends we follow.
If we were to follow the pre-2010 trends, by 2050 the median earner would be taking home almost £35,000 a year. At the other end of the spectrum, if we follow the coronavirus with a no deal Brexit and permanent austerity, we might be looking much more like £16,000.
In the first case, the average person would have a far easier life than today – though still not luxurious. In the second case most people would be living in or near today’s poverty line.
The UK would have become a bit like South Africa: a small number of immensely wealthy people living surrounded by intense security to protect them from the impoverished masses.
That process is what the 99% Organisation calls mass impoverishment, and that is what we were set up to prevent.
And, perhaps surprisingly, given the scale of the problem, the actions we need to take are individually neither particularly radical, nor very complex.
In fact there are really only five actions we need to take.
The first action is a democratic reset. At the moment there is nothing in our unwritten constitution which prevents the government enacting a policy that it knows will be harmful for 99% of the population. It is simply taken for granted that they would never do that. The last 10 years show us that we cannot rely simply on taking it for granted; we need constitutional protection.
We also need far more in the way of checks and balances than are currently present. Looking at the state of the US today shows that democracy is fragile and risks being captured by powerful interests representing only a very small fraction of the population. And as the House of Lords has recently made clear, deocracy and the rule of law are under threat in the UK, too.
The second action is self-evident: we need to base policy on facts not myths. The dominant policy of the last decade has been austerity, with all its ill effects – and this was justified on the basis of the state of public finances: the level of debt to GDP. But as we saw in before, as a matter of fact, this is no justification. Austerity was based on a myth, not the facts.
The third action builds on the foundation of the first two actions to develop policies which both grow the pie and share it fairly – so that everybody in society benefits.
Although it’s true that policy formulation is very complex, fundamentally there are only four types of policy. Every policy either grows the pie or it does not grow the pie; and it either shares the pie fairly or it does not.
That gives us this picture.
At the top right are the shared growth policies which both grow the pie and share it fairly. Take fundamental research, for example, we have been gradually funding less and less of this – and yet it is the engine of our future prosperity. Or education; or civil infrastructure; or healthcare – all of these things help everyone in society. We want to see far more of these.
At the top left are policies which do grow the pie, but they don’t share the benefits fairly. Aggressive automation, for example, could enable us to produce lots more valuable goods and services, which might be good for society as a whole, but would also lead to many job losses. If we do nothing to balance these policies, the pie may grow, but many people will find their slice shrinking dramatically.
And this brings us to the need for the policies on the bottom right. These policies can be used to balance type I policies so that everybody shares in the benefit that growing the pie can offer. So if we did have aggressive job automation over the next 10 years, some of the casualties could be mitigated by retraining and direct job creation schemes, and some of the balancing would need to come from a strengthening of the safety net. A good policy portfolio is a balanced policy portfolio.
Finally there are the vulture policies which neither grow the pie nor share it fairly. A no-deal Brexit would be an example. The government’s own analysis shows that no deal Brexit would be expected to shrink the pie. When that happens many people are bound to suffer, even if some hedge fund managers do extremely well. We simply should not implement vulture policies.
So if we look back over the last 10 years, we can see that the main reason for a lot of our problems is that we’ve had a preponderance of Type I and Type III policies, and far too few Type II and Type IV policies.
What would happen if we shift policy formulation to produce a balanced portfolio of type I, type II and type IV policies?
It would not create utopia, but it would bring us to that type of attractive world that we talked about before, in which the next generation is substantially better off than today and our children have an appealing future to look forward to.
The fourth action is to invest wisely in the future. Because of austerity we have been unwisely under-investing, and there is a great deal of catching up to be done.
And finally, the fifth action is to ensure clean, competitive markets. This is to make sure that ethical businesses outcompete the unethical ones, rather than the other way round.
There is a conventional narrative of the role of business in improving the world. In this story, good behaviour is synonymous with good business. If you treat your customers well, they will be more loyal; if you treat your employees fairly they will more than repay it with commitment and creativity; if you contribute to the rest of society, you will be rewarded as a good corporate citizen.
In this story, ethical behaviour and competitive advantage are more or less synonymous.
And there are certainly good examples of companies which have both behaved ethically and been successful. The top ten in the UK include: Pukka teas, Neal’s Yard, Triodos, and Ecover.
But if we look at the really successful companies, what do we see? Five huge companies now make up 20% of the market value of the entire S&P 500: Facebook, Apple, Microsoft, Google and Amazon. They are all under investigation by House judiciary’s antitrust subcommittee for anti-competitive behaviour. In addition, they all avoid taxes. Amazon is notorious for its treatment of its workers. And Facebook has been complicit in abuses of democracy. Are these the five most ethical companies in America? I hope not.
So, what is really happening here? In practice, one of the easiest ways for a business to be competitive is to externalise its costs: to pollute without paying the costs of clean-up, to avoid taxes, to underpay staff – and leave the rest of society to pick up the bill for all this. And so an ethical business finds itself at a cost disadvantage when competing with an unethical one. Amazon exemplifies the power of externalisation as a competitive weapon.
At the moment, the playing field is tilted against ethical businesses.
We have started a project jointly with Imperial College, the Institute for Public Policy Research and the Impact Project (which coordinates the international accounting standard setters). This project is aimed at quantifying the externalities and adjusting company accounts accordingly. It is the first step towards re-engineering the profit motive into a force for good.
Those are the five key actions.
So, to summarise:
- we saw that the UK faces a stark choice – but also that it is a choice: we can choose the future that we move towards and that we leave to coming generations;
- we also saw in outline the kinds of policy shift – and shift in mindset – that will be needed to move us towards an attractive future for our children.
At the same time as the book 99% was published, we set up the 99% Organisation. I hope I’ve given you a flavour for what we are aiming to achieve with the book and the movement: ending mass impoverishment, creating a world fit for the younger generations to live in: greener, fairer and more prosperous than today.
Please do sign up and join us: we need your help.