Was 2017 a bad year for capitalism?
- Published
It was the year the UK stock market broke through a price barrier it set back in 1999. The unemployment rate reached lows not seen for 42 years as record numbers of people found themselves in work.
Silenced during the financial crisis, the full-throated roar of capitalism should have been deafening.
And yet on many measures, 2017 was a bad year for capitalism, the system of free-market economics.
For starters it was the year it faced serious opposition.
In his conference speech, Labour leader Jeremy Corbyn said that capitalism faced a "crisis of legitimacy" after the 2008 financial crash and the time had now come for a new economic model, with a bigger role for the public sector, renationalised utilities and more investment in infrastructure and skills.
Labour Party membership doubled under Mr Corbyn, and having been written off by most pundits when the election was called, Labour ended up gaining 30 seats.
Jeremy Corbyn has spoken of capitalism facing a "crisis of legitimacy" since the 2008 financial crisis
As with all political punditry, hindsight proved helpful. Experts who wrote off his chances soon claimed it was no surprise how well Mr Corbyn's criticisms of capitalism went down given the economic reality of most people's lives.
Capitalism's central promise is that through hard work you - and your family - will have a better life. Of course, there are recessions from time to time but, generally speaking, the tide of economic growth will eventually lift all ships.
Well, that hasn't been true for millions of people since the economic crisis of 2008 but in 2017 a new grievance was added to the decade-long austerity fatigue. After a two-year period in which pay rises narrowly exceeded negligible inflation, prices started rising faster than pay - meaning on average people were getting a little poorer every day.
The main reason behind stagnant pay was, as every economist in the land told us throughout 2017, poor productivity. That is measured as the value of stuff made or services provided per worker, per hour. When it goes up, you can afford to pay workers more, their living standards improve and they pay a bit more tax for public services - everyone is happy. When productivity doesn't go up, none of those good things happens.
None of those good things happened this year. In fact, 2017 was the year the budget watchdog in the UK finally gave up waiting for the usual historical rise in productivity to return - with painful consequences for the public finances and the chancellor.
When you give up on improving productivity, some would argue that you are pretty much giving up on capitalism.
Capital is meant to find its way to where it is needed to boost economic performance and deliver a return to the providers of the capital. In the process, labour-intensive industries such as manufacturing, for example, can buy new kit to make more stuff more efficiently and therefore can pay the reduced number of workers more money.
Poor productivity remains a major problem for the UK economy
This year also saw even big asset managers raising the alarm over how little businesses were investing in the future - preferring instead to increase payouts to shareholders.
Dividends from UK companies increased 17.5% in the three months to September, the biggest rise anywhere in the world and that is up against some stiff competition. For the past few years, US companies have paid out more than 100% of their profits. That means they are shrinking, not growing.
There are other reasons for capitalism's poor showing in improving people's living standards.
Ultra-low interest rates for a decade have kept some zombie companies alive that otherwise would have died and thereby see capital and people reallocated to healthier, more productive businesses.
London shares have enjoyed a buoyant year
Why does this matter?
Perhaps the most damning report on capitalism in 2017 was to be found in the housing and social mobility figures.
Home ownership in England fell to its lowest level in more than 30 years despite umpteen speeches, initiatives and programmes from successive governments to reverse the decline. The possibility of owning a home is perhaps the poster child of capitalism, a two-fingered gesture to the feudalism that preceded it and a powerful expression of social mobility.
Getting on in life is at the heart of the capitalist promise and delivering on that is important enough for the government to have appointed a Social Mobility Commission.
It recently reported that, at the current rate, it would take 15 years to narrow the ability gap between rich and poor at the age of five, 20 years for wages to return to the same level in real terms as they were before the crash and 80 years to close the gap in higher education participation rates.
Levels of home ownership have continued to fall
That was the last report delivered by the commission's chairman, former Labour minister Alan Milburn, before he resigned along with his Tory deputy, former cabinet minister Baroness Shephard, citing lack of progress and government support. A bad end to a bad year for the champions of capitalism.
In truth, there have been very few good years for capitalism since the great financial crisis. In 2011, the Occupy movement invaded Wall Street and the City of London demanding immediate global change.
Those tents and placards are long gone.
But the effects of the crisis on earning power, living standards, home ownership and social mobility - all things capitalism promises to improve - remain with us as we end 2017.
Let's end on a note of cheer. Thanks to the wealth destruction of the financial crisis, changes to UK tax policy lifting many lower earners out of income tax altogether and a higher national minimum wage, income inequality has actually declined in the UK in the past decade.
- Published23 October 2017
- Published10 January 2017
