This is a transcript of a presentation given by Mark E Thomas to the BMW Responsible Leaders Forum on July 1, 2020. If you prefer, you can watch the video here.
As Tom said, tonight’s presentation is divided into three parts, and the first part is looking at what kind of a world we might expect after the coronavirus.
So let’s begin by looking at the course of the virus itself.
Part One: The Virus and What It Could Mean
In this chart I am using the FT/ONS numbers for death toll which are more comprehensive than those reported by the government.
As you can see, the vertical axis is logarithmic, which means that each step up doesn’t just mean a certain number of extra deaths, it means 10x as many deaths.
The slide shows four scenarios for the death toll from the coronavirus. The highest rather faint line is the laissez-faire line: what would have happened if the government had done nothing significant to contain the virus – no lockdown in March. The results of that would have been over 400,000 deaths in the UK. And most of them would have happened by now. For comparison, that is approximately the number of people who were killed in the UK during the Second World War.
Fortunately, we did have a lockdown, and when it came it was rather effective – according to the FT, total deaths so far are around 66,000: a terrible number but far short of 400,000.
The red line is what would happen if the government aimed to remove all restrictions on public activity (and assuming that people’s behaviour reverted to normal). It shows a second spike leading to almost the same number of deaths as a laissez-faire line.
The yellow line is what would happen if the government aimed to unlock as far as possible subject to not overwhelming the NHS. In this case, the death toll would rise until about 1,000 were dying per day, so that by April next year we would have seen a death toll of 250,000 or so – and still rising.
The orange line represents what would happen if the government aimed to unlock sequentially, but to keep the rate of infection, R , around 1. In this case, the number of daily deaths would remain rough roughly stable, so that by April next year there would have been around 120,000 deaths – again still rising.
And in both of those two scenarios, because restrictions would still be partly in place, they would also be bad for the economy.
Finally, the Green line represents what would happen if the government followed the approach adopted by New Zealand: hard lockdown followed by a transition to Test, Trace and Isolate once the numbers are low enough. In this case, the number of deaths would continue to decline rapidly and the ultimate death toll would be around 75,000 – almost all of which have already happened.
And the thick black line shows the actual results up to yesterday.
So the good news is that, if we don’t do anything stupid now, we have already seen the vast bulk of all deaths which will come in the UK.
But the bad news is that it is not at all clear that the government intends to avoid the trajectories shown in the yellow and orange lines. But 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 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 ended 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 comes from the Office for Budget Responsibility estimates. 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 you will hear a lot of noise about ‘ruinous levels of debt’ and the supposed ‘need to get government finances under control.’ Almost all of that will come from politicians and journalists; and almost none will come from serious economists – 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.
But the crises we face are not just COVID-19, Brexit and mass impoverishment: we also face a climate emergency!
And once we factor in environmental trends, the choice looks even more stark.
You can see that, if we carry on as we have been going, we will neither succeed in tackling mass impoverishment nor in dealing with climate change. And since the two factors would be likely to interact, the endpoint is probably even worse than the diagram suggests.
But if we invest to build a greener, more prosperous, fairer society, we could end up in a very different place: a world where rather than our children being the first generation that expects to be poorer than their parents, they can expect to be substantially better off in a much greener world.
We’ve seen that it is a choice that we face, not an inevitability.
Why don’t we simply choose:
- no mass impoverishment,
- no environmental degradation,
- lower inequality, and
- a constructive role for everyone in society
– in other words a positive future for our children?
After the break we will come back to the question of how we can create such a future.
Part Two: What It Would Take to Build a Better World
Before the break, we saw the range of possible futures open to us. And we saw that at one end of that range is a rather attractive future. In this part of the presentation we will look at what we have to do to build that attractive future.
The economy is the system we have put in place to provide goods and services for people.
It’s a complex system, of course, but we can think of it as being a bit like a pie in which the size of the pie represents the goods and services which are available to be distributed, and the slice represents what each person actually gets.
In this analogy there are three problems we need to fix:
- for the last decade, the pie has hardly grown at all in the UK;
- when it does grow, some of that growth is bad for the environment; and
- most people’s slices are smaller now than they were in 2007.
How are we going to fix this?
In principle, the answer is simple:
- firstly, we need to make sure that when we do grow the pie, the growth is not harmful; and
- secondly, we need to grow it faster and share it more fairly.
That will produce the desirable future that we talked about in Part One.
Let’s start by looking at the issue of good growth and bad growth.
We can split all economic activities into three ‘buckets’:
- the good bucket which contains all activities that do not harm the environment: planting trees and insulating houses, for example would fit into bucket A;
- the could-be-good bucket which contains activities which, though desirable in themselves, have at least some environmentally harmful consequences – agriculture, public transport and energy generation would be in bucket B;
- the bad bucket which contains activities which we would be better off without – fossil fuels, for example.
Once we know what sits where, we can aim to grow bucket A quickly; to transform bucket B – for example by switching to renewable energy for electricity generation – and to shrink bucket C as fast as we can.
When we do that, the picture looks a bit like this.
So you can see that about 80% of the U.K.’s GDP is already in the good bucket – only very minor transformation is required. And most of the rest is in the could be good bucket. There is major transformation needed – but in principle it is straightforward to see how this would be done. It is really only the extraction of fossil fuels that cannot be transformed, and sits in the bad bucket.
So if we target investment at growing the good bucket and transforming the could be good bucket, while shrinking the bad bucket, we can both produce economic growth and reduce emissions.
And that would clearly be good for the environment. But what about people? How will we end mass impoverishment?
That brings us back to thinking about the pie – how will we grow it, and how will we share it more fairly?
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. Very 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 balance these policies, the pie may grow, but many people will find their slice shrinking dramatically.
Over the last 40 years, in the United States, the pie has grown dramatically but many people have seen their slices shrink – and this is because of captured growth policies such as automation and free trade with low-cost countries which led to the hollowing out a lot of manufacturing jobs in the States. We need to see these policies balanced.
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 in Part One, in which the next generation is substantially better off than today and our children have an appealing future to look forward to.
So in principle, building that attractive future seems quite possible – but it does require a change of policy direction, and we will discuss that in Part Three.
Part Three: How We Can Do It In Practice
In Part One, we saw that there’s a huge range of possible futures that we could head towards, and that some of those futures are very attractive. In Part Two, we explored briefly the kind of policies that would be needed to create such an attractive future. In Part Three, we are going to discuss what will have to happen in practice to direct us towards that attractive future.
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. All countries need to learn from the US experience.
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 – and this was justified on the basis of the state of public finances: the level of debt to GDP. But as we saw in Part One, as a matter of fact, this is no justification. Austerity was based on a myth, not the facts.
The third action, we have already talked about. Formulating policy for abundance and solidarity – using that matrix of policies to ensure that we grow the pie faster and share it more fairly.
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. Competition is supposed to ensure that good businesses drive out bad ones. But too often today, it works the other way round. 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 this. And so an ethical business finds itself at a disadvantage when competing with an unethical one. We need to fix that.
So how are we going to ensure that these five steps become reality?
This slide shows what The 99% Organisation is in the process of building.
In June last year, this slide would have been blank. Nothing existed: no book; no website; no organisation – nothing but an aspiration.
That aspiration, of course, is to change policy along the lines that we have been discussing.
So a little under a year ago, we published the book 99% and set up The 99% Organisation: an inclusive, non-partisan volunteer organisation whose aim is to prevent further mass impoverishment.
There are 650 people in the country who need to change the way they vote – our MPs – and they need the votes of their constituents (that’s us).
So the 99% organisation is setting up local groups in each constituency whose ultimate objective is to reach a point where they can apply sufficient pressure to change policy.
But, of course, they can’t do that on their own, and we are putting in place a series of pressure points which the local groups can use to make their points to MPs.
First, there is the book, 99%, which sets out in far more detail than I have time to do today both the problem and the solution. It also contains a lot of facts, many of which will be new to most MPs, and which will strengthen their hand in making their own arguments.
We are gradually working to improve our publicity – the book was named by the Financial Times as one of the best economics books of 2019, and we have been gaining an increasing profile on social media. The next stage will be to get a higher profile on mainstream media.
We talked about the need to create clean, competitive markets – and we have recently kicked off a joint project with Imperial College London, the Impact Project and the Institute for Public Policy Research to produce a prototype league table of businesses which externalise their costs. That is a first step in what will be a long journey to reengineer the profit motive and make externalisation impossible.
And we are starting other projects with other organisations which will create further pressure points over time.
So we have a long-term plan to change the direction of public policy. And we have started work on it. But what are we doing in the short term?
While in the short term, we shall certainly take any opportunities open to us to influence policy, our main focus right now is on spreading the word: we need as many people as possible to understand that mass impoverishment has been happening, that it is a real risk in the future but that it is not inevitable. That in itself is an enormous task.
Fortunately, the organisation is growing fast. At the end of last year, we had managed to sign-up around 100 members. And membership is growing at more than 20% per month, so today we have over 500 members and by the end of the year we were originally aiming to have about 600 – now it looks as though the number will be far higher than that.
And those members have a very diverse range of skills, talents and experience, so we are an increasingly powerful voice with an increasing capability to undertake important projects.
So, to summarise:
- in part one, 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;
- in part two, we 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; and
- you now know something about the 99% organisation and its plans for change.
Thank you very much indeed for your questions so far. Please do sign up and join us: we need your help.