Two Hundred Years of Muddling Through: The surprising story of Britain's economy – Duncan Weldon, Abacus (2021) & Shattered Nation – Danny Dorling, Verso (2023)
Duncan Weldon outlines the contours of British economy history since the early 1800s. Since I can barely remember what I had for breakfast, I’ll focus on the years following WWII. From the 1940s-1970s, Weldon suggests there was a “great deal of economic continuity”.
The most notable policy consistency was the expansion of the British state. Industry nationalisations and welfare sending were financed through elevated taxes, facilitated by high levels of manufacturing activity and (by extension) rapid GDP growth.
At peak production, in 1966, industry accounted for one-third of economic output. Unsurprisingly, the adoption of expansionist fiscal policy and high union membership created a more collectivist Britain. Income inequality reached its lowest ever level in 1974.
At roughly the same time, however, supply-side forces – globalisation, oil price increases and a falling pound – were converging to undermine British output. High prices eventually raised the costs on which British industry operated.
The response (from both Labour and the Conservatives) was to try and boost demand. This raised inflation on a scale never experienced before in peace-time, hitting 23% in 1975. That was followed by a punishing IMF loan in 1976.
The government which assumed power in 1979 was elected on a manifesto of change. In particular, the economic borders of the state would be radically redrawn. Wherever possible, Margaret Thatcher wanted to use market forces to allocate resources.
Union-bashing and privatisation became the touchstones of economic reform. British telecom was sold in 1984 and British gas in 1986. British steel and British Airways followed, and then the water and electricity companies in 1991. British rail was sold off in 1994.
Meanwhile, taxes were cut repeatedly during the Thatcher and Major years. The top rate of income tax fell from 83% in 1979 to 40% in 1988. Corporation tax was slashed from 52% in 1979 and 31% by 1997. No British government has ever cut taxes by so much.
By the 1990s, Britain’s shock therapy had successfully lowered inflation and generated a handful of wealthy pockets (namely in housing and financial services). However, the average growth rate slowed from the post-war period, falling to 2% during her tenure.
Slow wage growth coincided with an explosion in banking, which financiers exploited. Loans to the household and non-financial sector rose from 170% of GDP to over 230% of GDP in the 1990s, the fastest ever growth in private indebtedness. Banks proliferated.
While the finance sector has seen material productivity gains in recent decades, the rest of the economy hasn’t. Due to a lack of investment capital and technical skills, Britain’s economy is the least productive in Western Europe. It’s also highly unequal.
Inequality peaked in the early 1990s, and hasn’t come down much since then. Today, the country’s richest 1 percent take home 13% of all income generated, and own a staggering 21% of all the country’s wealth.
Danny Dorling provides a (slightly too) sprawling narrative, giving readers the raw data to process the sometimes vague – and poorly articulated – sense that British society has gone badly wrong.
Once housing costs are paid, for instance, the average household in Britain is less prosperous than the median in every large European country. At the same time, Britain has never had as much housing as we do today.
Dorling excoriates the negative effects of free-markets. In Sweden, private-sector rent levels are set by national-level negotiation, not individual bargaining. As in France, rent control is a key feature of the German housing market. Rent controls in the UK were revoked in 1989.
He examines other features of British society, like education and labour markets, and concludes that socio-economic indicators are heading downhill in Britain, “market forces plus weak regulation is running into trouble as a policy formula.”
The central tenet of neoliberal politics has always been that dismantling the state and outsourcing its running to private companies will lead to better outcomes for all. Approaching their diagnoses from different perspectives, both authors disagree with that conclusion.
