We need to overhaul our economy to meet the challenges of the 2020s
British capitalism is deeply dysfunctional. We have the richest region in Europe – inner London – but most British regions are now poorer than the European average. The UK’s productivity performance has been abject for a decade. We are in the middle of the longest stagnation in earnings for 150 years. Young people today are set to be poorer than their parents and poverty rates are rising. The environmental impacts of our economy are damaging and unsustainable. In short, while the UK retains significant endowments and capabilities, our economic model is failing too many people and needs radical reform.
The case for change is compounded by the challenges confronting the country in the decades ahead. Brexit is the most obvious disruptive force, and whatever relationship emerges with the EU, it is bound to have critical implications for our future prosperity. Yet even as the UK negotiates its new relationship with Europe, an accelerating wave of economic, social and technological change will reshape the country, in often quite radical ways. Brexit then is only the firing gun on a wider decade of disruption. Four trends stand out that will shape the course of the 2020s: technological transformation, demographic change, the evolution of globalisation, and growing ecological crisis.
First, ongoing technological change has the potential to reshape the economy, driving economic, social and political realignments. The accelerating capability of AI and robotics is likely to shrink the areas in which humans have comparative advantages over machines. This does not mean a post-human economy is imminent. Indeed, given the UK’s woeful performance on investment and productivity, it is the relative absence of robots that is the more obvious concern on current trends. Yet the increasing capability of machines is likely to reshape how we work. The greater risk is then not mass technologically-induced unemployment but a paradox of plenty, a world in which we are richer in aggregate but poorer in average, as the gains of automation flow disproportionately to the highly-skilled and capital grows its share of national income at the expense of labour. It is a future in which who owns the robots comes to own the world. The continued rise of digital platform monopolies – the dominant organisational form of contemporary capitalism – is likely to further concentrate economic gains.
Crucially, the machine age will be human shaped. The pace and distributional effect of automation is driven by a series of factors that public policy profoundly shapes. The technical capacity to automate is only one. The relative cost of labour and capital, the costs of technological adoption relative to the benefits, the ethical and regulatory norms governing the use of technology all impact on whether roles are actually automated and to what effect. The impact of technologies, in other word, is not a directionless, impersonal phenomenon but rather one embedded and shaped by our collective institutions, cultures, and politics. New models ownership of technologies, data and equity is therefore a fruitful avenue to explore to ensure the machine age is one where abundance is matched with justice.
Second, demographic change will profoundly shape the 2020s. At home, we will become increasingly diverse, with a fifth of the UK citizens from BAME backgrounds by 2030. At the same time, the number of people aged 65 or over is forecast to grow by 33 per cent (from 11.6 million to 15.4 million) by 2030. By contrast, the working age population will increase by just 2 per cent. The ‘greying’ of society will drive demand for increased spending on health and social care and pensions. It also means a structural fiscal deficit likely to re-emerge in the 2020s unless we rethink our approach to public taxation and spending, as well as migration. The housing crisis, meanwhile, is set to deepen, with sharpening divides in terms of tenure, housing quality, and housing wealth between generations and regions. An ageing global population could halve economic growth in developed economies over the next thirty years, causing a decline in historic GDP per capita growth rates. In other words, we are entering a slower-growth world due to ageing unless we can radically improve productivity, while demographic change in the UK will have profound impacts on public policy.
Third, the nature of trade, the locus of global economic power, and the regulatory architecture that shapes globalisation are all likely to change in the 2020s. As a percentage of global output, trade appears to be plateauing and financial integration slowing. Whether this pattern holds or not, what is traded is expected to shift. Trade in services, much of it digital, is expected to surge. Economic power is likely to further shift towards the Global South in the 2020s. By the end of the next decade, 30 per cent of all global trade is expected to be between emerging markets, more than double their share today. China expected to have 17 of the world’s top 50 cities by GDP in 2030, more than either North America or Europe. While the United States will retain powerful advantages – not least its nodal role in key digital, financial and military infrastructures – the global economy is likely to become more complex and power more diffused.
Finally, the ‘shock of the Anthropocene’ will overarch this. The aggregate impact of human action on the Earth’s natural systems mean many critical environmental thresholds are likely to be breached in the 2020s. These include destabilising climate change, biodiversity loss, disruptions to nitrogen cycle, air pollution and global habitat loss. The effects of compounding environmental breakdown will be unevenly felt, its impact often gendered and racialized. Planetary crisis is perhaps better described as the ‘capitalocene’ as environmental degradation is bound up in patterns of capital accumulation. Given this, ensuring we live safely within the Earth’s “planetary boundaries” will require a transformation in the way today’s economies are organised, including a more or less complete decarbonisation of energy, transport and industrial systems.
In a world increasingly transformed, the status quo will prove inadequate. The challenge for us all is to better understand the changes coming so as to more effectively shape the economy towards a more just and sustainable future. It is why the IPPR’s Commission on Economic Justice is seeking to develop a transformative agenda of change to match the challenges ahead, so as to build an economy where abundance is joined with justice.