Gordon MacIntyre-Kemp: Time is nigh for a radical shift in our economics

People’s needs were simple; they needed food and water, shelter, protection, a sense of belonging and feeling valued. Only once those basic needs were met did people’s needs develop more. Warfare and lack of law and order created an elite warrior class of clan chiefs, lords and barons. Territories gained and shared among those that fought on the winning side concentrated land ownership in fewer and fewer hands, creating a second elite of landowners.

Then came the industrial age and access to capital not just land mattered and so bankers and industrialists became powerful and joined the elite. Sure, the landowners had capital enough to open mines and mills but as the new rich started to outnumber them, and to service that swelling group and the needs of capitalism a new burgeoning middle class of clerks, accountants, bank managers and shopkeepers emerged. This new middle class had a vested interest in not making it easy to become middle class. Whereas the farm manager was often part of your community, your neighbour or even relative in industrial Britain, now your manager was a stranger, had production targets to hit and cared more for his own advancement than he cared for his workers.

The upper classes now had a middle-class buffer between them and the workers and people were just seen as cogs in the money-making machine, the workers mistreated, their needs and wants only met by the economy in the most basic of ways such as food, water and shelter and often not always that. Hence the arrival of unionism and the labour movement to restore the balance that holds society together and the higher needs of ordinary people came back into play. Widespread education, and periods of booming art, literature and musical movements signify the points when the economy was doing its job — the roaring 1920s and the swinging 1960s even the 1990s with cool Britannia.

There are many theories of economic system change. My view is it becomes inevitable when the old system is overwhelmed by technology and the people find themselves feeling insecure and worried about their ability to meet basic needs and rebel. However, resistance to change is always robust, firstly by those who have benefited from the old system, and secondly by many who are being harmed by the failing system, because of their growing insecurity. Each generation lacking the historical view accepts the reality of their own economic circumstances as the norm and so fears change. The welfare state now protects people and so removes the fuel for revolution and protest, and mass media becoming part of the institution of state stops contrary messages from reaching the population and so the natural transformation of the current economic system has been delayed. By my reckoning we are overdue a revolutionary change and the longer we wait the harder, more prolonged and costly it will be.

Capitalism started to change in the 1950s. Initially things were made that people needed, then with the onset of the advertising age things were made that people needed and wanted. From the 1960s they made people want things they didn’t need. Labour costs were rising and so we started to import things people wanted but didn’t need which was more profitable — we were exporting our poverty. The bubble held and we were in a consumer rather than purely capitalistic society. In the last 15 years with worker wages stagnating and manufacturing off-shored or replaced by imports the consumer economy bubble was ready to burst.

Two things happened however: firstly credit became easy and we entered unaffordable consumerism.

Secondly, companies cut jobs and manufactured the things (abroad) they had made people want and now couldn’t afford, and so the institutions leant consumers money (at high interest rates) to keep the economy going.

Now the gap between the rich and the poor had extended to its greatest level but the poor were able to keep spending, so they didn’t notice. I had been predicting for years that this would sink the economy between 2012 and 2015 and had lobbied Bank of England Monetary Policy Committee members to act. However, before the personal debt bubble reached the busting point the banking sector got greedy, over-extended on housing bad debt and securities and crashed. This led people to reel in their spending, to deleverage their personal debt and spend more in areas with returns such as home improvements, and that delayed a second and more drastic consumer credit crash.

However, the spectre of a consumer spending slow down is emerging again. Inflation is rising, and almost at three per cent, so the Bank of England MPC is splitting and this week its chief economist Andrew Haldane has set himself at odds with BOE Governor Mark Carney and suggested that interest rates will have to rise soon. However wage growth in real terms is flat-lining and lending secured on dwellings rose by a record £3.8 billion in December 2016. As many as 25 per cent of mortgage holders may already be overextended and so any interest rate rise will lead to a squeeze on spending through higher personal debt and mortgage repayments (increasing foreclosures) with economic growth falling towards negative rates threatening a new deeper recession. If this coincides with a 2017/2018 housing market correction of upwards of 20 per cent (that I have been predicting in this column for two years) then the recession that will move enough people back into failing to meet their basic needs and break the economy, ushering in a the transformation to a new economic system will be upon us. The worst that could possibly happen for those that don’t want change is for the UK Government to lose its majority, for the UK to leave the single market and for the USA to become inward looking and protectionist. Is this the perfect storm that will create the a new economic age and fundamentally change national and supranational constitutions and forms of government?