How the U.K. Became One of the Poorest Countries in Western Europe
theatlantic.com
theatlantic.com
It feels like half the electorate live in a fantasy land. Over two million people using food banks—many in work—and yet all the chap I see on my morning dog walk wants to talk about is “all the people on the dole who live in big houses and drive brand new cars” (Jobseekers Allowance is £77/week, for reference).
Meanwhile our household income is far above the national median, and we still need to scrimp and save far more than our parents and grandparents did to work towards a deposit on a house. I truly feel for the low wage earners in this country, even though a significant portion of them continue to vote for these monsters. We seem to be totally without compassion as a nation right now.
Something is wrong with the economy, not just in the UK, but in America and probably a bunch of other countries. Where is the prosperity, if its there, why is it not more widely shared? is it a single cause, or is the cause manifold?
I have some ideas as to the answers to these questions (and its not capitalism is bad), but I too am just an engineer, not an economist. The unrest that propels populism is real. It's clear the status quo isnt working for the majority.
If you want to use our parents (and before) proportion of transfer of prosperity, we should lower it significantly.
Top marginal tax rate in the mid 1900s was 70-90% and the estate tax was actually assessed without exempting the first $14M or whatever it is.
It’s all a social construct and we collectively set the rules.
https://fred.stlouisfed.org/graph/?g=jU5N
And we all know anyone talking about the standard of the bottom is looking exactly at transfer payments. That's how those at the bottom survive. We shouldn't try to trick the reader by saying "I'm not talking transfer payments."
A shareholder of a public company has done nothing for the company to generate value, even more when buying the paper from a previous shareholder and so not contributing to capitalise the enterprise.
Apart from helping to set pricing in the market, what exactly does a shareholder in the open market brings of value-generation to a company? Nothing. And they get dividends while most workers depend on the benesse of a company sharing bonuses and so on.
If we are going to compare on an axis, we need to first have a defined axis, otherwise it's just an opinion.
For instance, GGP and you both clarified things with two different definitions for "shared prosperity".
> Something is wrong with the economy, not just in the UK, but in America and probably a bunch of other countries. Where is the prosperity, if its there, why is it not more widely shared? is it a single cause, or is the cause manifold?
I'm trying to find basis for the part that references America, other than a gut feeling. If not transfer payments, GDP growth, real wage growth, then what? If everything we can measure says things are generally improving, then why the feeling that prosperity isn't happening?
Your response here tells me prosperity is pretty widespread as there are lot f shareholders in the US.
Largely, in my adult life, I've seen management and shareholders pots grow, and labor stay the same.
When the pie grows everyone ought to get a little bigger piece of it.
Meanwhile, rent, price of a used or new car, college education, homeownership and medical costs have grown unabated - and generally faster than inflation.
Asian countries have adopted what worked in the west: Capitalism and lifting people out of poverty at an unprecendented rate.
Those that complain about inequality are totally ok with not comparing themselves to someone in Bangladesh. To them, you look like a multi-millionaire. The hypocrisy is so blindingly bright, it is unbelievable.
None of the current zeitgeist has any reason, rationality and logic. It is subjectivism and post-modernism in its worst form. Biting off the hand that feeds them.
You forgot to mention that the hand doing the feeding is attached to a body with another arm that’s picking the hungry masses pockets.
Where is the coercion and use of force?
If you want to understand these days, you have to understand the Gilded Age, the rise of Unions, the New Deal, the G.I bill, the rise of the middle classe post WW2 until the end of the 70s, when reagan started to reverse the course engaged by FDR in the 30s, gutted every regulation intended to protect workers, envirronement, gutted union coercitive power, deregulated financial system with its new credit offering allowing to compensate diminished real purchase power of middle class salaries, slashed taxes on highest tiers of population and corporation, slashed public service.
The subprime crisis is a direct consequence of this...
For a short introduction in the matter, I suggest you to watch the last episode of season 33 of The Simpsons.
Prices came down, even with stagflation, things got better.
[0]https://en.wikipedia.org/wiki/Governorship_of_Ronald_Reagan
In STEM we've seen huge stagnations in frontier research, breakthrough physics, and academic originality. And the arts are hardly in a healthier state.
Financially we're in a 30s-style depression but the media are being careful not to call it out as such.
Clearly this is Not Working.
An economy that privileges a few hundred billionaires at the expense of everyone else is not prosperous, stable, secure, or capable of real invention.
The UK and other western countries were a global power because colonialism. Then WW2 happened and the US was mostly unscathed while also prioritizing long term growth through a stable democracy which led to high quality of life until the rest of the world caught up.
We can talk about immigration, austerity, trade policy, etc. But these will only move the needle slightly. The overwhelming advantages that these countries experienced won't happen again until there's another major disruption.
Yet the narrative is that the economy is in the crapper. The powers that be want to go back to the glory days of low inflation, high unemployment and increasing inequality. That's what we'll get if the fed continues to raise rates.
Our inflation is anything but moderate
Wouldn't that situation be the best for wage increases?
And while low unemployment is not unique to 2022, the decreasing inequality and the imbalance between the number of job openings vs job seekers are both at levels not seen in modern times. It seems reasonable to say that the inequality reduction and the high number of job openings are correlated. Raising interest rates will impact the latter so it's quite probable that it will reverse the decreasing inequality trend.
Do you have a resource you can recommend for self study?
Unless we can attract highly-skilled workers by offering higher salaries than other countries we're doomed to be servicing pensioners with fewer and fewer workers. And this will happen while our taxes are slowly increased to deal with their health needs while other public services are slowly reduced.
Any government that is in power should be working out how to build a political coalition that doesn't involve letting the old eat the young. Young people shouldn't be spending all of their money on rent and need to be able to build wealth and support families.
Edit: To be clear, encouraging immigration wouldn't lower house prices -- but without immigration we will have difficulty supporting the no-longer-working ageing population. Increasing immigration is one option; the other option is to trying to make it easier for the young to have children by making houses cheaper and providing completely free childcare for everybody, but these are much more difficult to achieve, as they have a much slower pay-off and would require taking money away from pensioners (which will get you voted out).
Noticeably this doesn't apply to non-scarce goods such as information products.
The worst is how they are treating disabled people, it's very common now for the government assessors to claim there's nothing wrong with you, and mark your disability score as zero, only to have this overturned in court later on, after months of stress and poverty. The unofficial government approach seems to be, let them die. It's disgraceful and appalling how these Tory scum are treating the most vulnerable in society. I can only hope with recent events they've fucked their electability for a very long time. A general election can't come soon enough.
The current variety of Tory has been destroying the country, and not just welfare programmes, since 2010. Look at productivity growth or at how people talk about Britain abroad.
Another issue is that church people tend not to be rich, and are dying off from old age with few people replacing them. We have to pick what we can still do with increasingly limited funds and people.
Btw, while I am liberal/left, many of the people working at the coal face are conservatives. I think one has to distinguish between Tory MPs and Tory voters, some of whom are socially liberal (though they would be offended to be described as such).
The article actually wants to make a point about falling living standards, but the author couldn’t resist a clickbait title so nonsensical it overshadows the rest. There’s probably some interesting analysis that could be done about UK PPS, absolute, mean and median incomes, incomes vs average cost of living etc. This is not that article.
However the underlying theme is definitely something that’s worth digging deeper. An economy that is too reliant on only one sector to generate wealth cannot survive on the long run when all the sectors are being systematically torn down and pushed behind. And as the author correctly pointed out, the left wing idea of creating a world without climate change through de industrialization and the right wing idea of living in the past are both fantasies that do a lot of long term damage that may not be apparent immediately.
If the purpose is to create a competition and see who can accumulate the most resources and power, then the UK (and US) are doing quite well.
If the purpose is to collectively grow our productivity so that all (for some definition of all) members of society have the opportunity to live better and richer lives, then the UK (and US) are doing rather badly.
On the same note, the gini index is a kind of inequality measure. If your definition for "poor country" is one with uneven income distribution then the US is one of the poorest countries in the world. Like I don't know, I just don't feel like this definition of "poor" works.
> too much wealth is generated by financial services in the capital
I think the article makes a firm, though not very clear, distinction about these things.
The missing puzzle piece for me when trying to better understand this topic is what "productivity" really means. I get the notion of "output per unit of work" - but there is never much attempt to peer deeper and understand why productivity is lower here.
Is there actual evidence of workers doing less on a given day? What does that even look like, for example in the retail sector where workers seem to have very little impact on the purchasing decisions of customers.
If it isn't employees, where does the lower productivity come from - are we just outcompeted on cost because we still try to have too much of a low-skill economy which can't keep prices as low as the developing world? It would be good to compare productivity in the UK with countries in Scandinavia, i.e. those with a better social safety net and without the financial centre of gravity that is London. Where does their productivity come from?
These are the kinds of topics I'd like both journalists and politicians to discuss more - but for as long as they have to cater to the lowest common attention span, I'm not getting my hopes up.
Assuming these fax machines are being used instead of PCs then one could imagine a worker being less productive than they otherwise would be.
[1] https://www.economist.com/britain/2017/11/09/what-fax-machin...
Trying to think of examples where I've seen this, the first thing that comes to mind is receptionists in my dentist's office. 2 or 3 surly, over-makeup'd women sat around chatting and occasionally dealing with customers. Maybe a good starting point would be to fire 1 of them and pay the other two more (or more likely, use the higher pay offer to get better people). Of course what really happens is that the business keeps that money and doesn't hire new/better employees, making the current ones even more surly but no more productive.
Going down this rabbit hole I conclude it is a cultural problem, but every solution I can think of (better safety net and higher minimum wage to push these people out of the workforce, for example) feel like they would be inordinately expensive.
[1] https://twitter.com/jburnmurdoch/status/1570832839318605824#...
Other indicators are less usefull to see if a country is nice to live in.
A direct comparison like this can't be made. I'm not even sure where your comparison comes from, the median American income seems to be about $5k lower than the median UK income.
But massive corporations and billionaires don't improve the day-to-day life of citizens. Americans are wealthy on paper but are one health crisis away from destitution.
For America, we burn a lot of productivity on vehicles that last 10ish years plus the gasoline to drive them. In much of Europe, they get the same/better experience with extensive subways and bike lanes and high speed rail.
>Take out Greater London—the prosperity of which depends to an uncomfortable degree on a willingness to provide services to oligarchs from the Middle East and the former Soviet Union— and the UK is one of the poorest countries in Western Europe.”
Yes. London is a financial centre. A large portion of the GDP of the country is generated by it's biggest (main?) population centre. Is there a problem that london chooses to indulge in the more lucrative financial services over Victorian industry?
Still, i do agree there are historical, major issues with lack of productivity and industry. The tories don't seem to have any vision for the economy future. They just throw money where its popular. I thought for a short while Liz Truss would be the answer, but she has turned up short in the IQ department, but i don't think its the picture of doom the atlantic thinks it is.
https://www.newstatesman.com/chart-of-the-day/2022/07/wages-...
Title: UK income has fallen significantly behind that of its rivals
Actual data: Change in median disposable income
I'll repeat my common comment that I wished I lived in a world where 'journalists' had to take basic math lessons.
That said the UK government should really get a grip and have a coherent long term strategy instead of fire fighting the next media storm from week to week. Automation will need to increase given an ageing population, people exiting the workforce ( willingly or through care or health reasons ) and closing the door to immigration via Brexit.
[0] https://ifr.org/ifr-press-releases/news/wr-report-all-time-h... [1] https://tradingeconomics.com/country-list/car-production?con...
America, and similar Presidential systems, there are set lengths of time for someone to be in office. That builds certainty. America may be a lot of things, it may have many issues, but you know with reasonable certainty, that there will be an orderly transfer or adjusting of power.
From Boris, to Truss, to Sunak in a matter of months. I'm an ocean away and I have little faith in the British government, I can't imagine what it's citizens must be going through.
The problem with british parliamentarism compared to the system other constitutional monarchies and democracies in europe have, is the the cabinet does not automatically gets disbanded when the goverment looses trust in the Prime Minister. In most european parliamentary systems, a re-election would be called if this situation happens. This is not the case in the UK.
Its utterly ludicrous the tories are still in the seat of power after having 5 PM's in 6 years.
Imagine if the House of Representatives managed to slap down the President and the Senate so hard that they never got up again, and you have what is effectively the UK system of government.
It's not very different to any other functioning democracy in that respect (and considerably more stable than many European countries which generally rely on coalition formation). The government has "collapsed" in the sense some politicians have ceased to back some other politicians because they've proved spectacularly inadequate in different ways, but it's the same party in power since the election, and since 2010 for that matter.
In other systems, there might be one person almost invulnerable to replacement even if they lose the confidence of everyone around them and everyone that voted for them, but if that person has a habit of hiring and firing people and changing political direction on a whim that's hardly resulting in greater stability, and often such systems come with their own alternative sources of uncertainty like midterm elections for chambers that get to block almost everything...
Political invulnerability of inadequate politicians is a bug in a system, not a feature.
Usury, Quantative Easing, Central Banks.
How do we fix this?
You better start running for the hills, bucko. The real Shit Storm 'What ryhmes with Rishi' is on its way.
Source: am British
After finding the actual figures, for some reason these were very hard to find in various news reports, it was a slight drop of 5% (from 45% to 40%) and the "rich" were classified as those making above 150k. In my mind that salary does not make anyone rich, I mean that's a low to mid level engineering salary in the US. Basically almost any US professional (lawyer, doctor, engineer etc) is going to make that or much more. Then I started looking into what does the average British citizen make and found it was incredibly low at 38K.
So basically it dawned on me that the UK is a country that pays very low wages which to me is very surprising as houses(flats) in London are extremely expensive. I would love for a UK citizen to chime in, but for me it was a strange realization as I always assumed that people in the UK made more than in the US.
https://www.thebalancemoney.com/average-salary-information-f...
Assuming the common 70%/30% premium cost sharing for a silver health insurance plan, an American has to pay somewhere around ~$200 per person at the minimum. That is $2,500+ per year for a healthy young adult, and goes up from there, especially for those with dependents who may not even be subsidized by the employer.
Although, the quality and quantity of healthcare actually delivered and received in both countries is heavily in flux, making comparisons even including insurance costs quite difficult.
There's not much difference between pounds and dollars these days. 1 GBP = 1.14 USD
Am told "Talent on tap, not on top" is a British expression, not American.
I perceive people in the US doing better by being talented, but mostly by being able to sell themselves; the more shameless the better. Meanwhile in Europe the perception seems to be "age before beauty", i.e. you get promoted mostly through long tenure, the old fashioned way.
In the UK, these two factors come together to create a downward, spiteful pressure on anyone getting too big for their boots - unless they bluster straight past it via nepotism or good old fashioned public school overconfidence.
And here I thought America had the lead on combining the worst parts of different systems! As in Wall Street loves privatizing profits while socializing risk like happened with the sub-prime fiasco.
But the Brit’s applying the strategy to the social strata is next level. Seems us and the Brit’s really do share a common cultural heritage. Well we still got bigger hats. ;)
- No additional costs for healthcare or health insurance
- Some state pension reduces the need to save for retirement
- (About) free university reduces the need to save for education (or, to have education debt)
- ~39 weeks paid parental leave
- 6 weeks of holiday per year is normal
- Other social benefits, such as childcare
I interpret this as meaning that people don't need to save as much money.
- University is definitely not free, at least in England. Fees are £9k per year. Interest rates are high and you don’t have to pay it back unless you earn over a certain amount so in reality, it’s more like a graduate tax for many, but it’s definitely not free.
- Childcare is limited to a few free days a week, often has extras to be paid for and is otherwise very expensive. For those on higher incomes that’s reduced too.
- 52 weeks parental leave is for the mother only and is only at statutory pay after 6 weeks (about £150 per week). Paternity leave is 2 weeks at statutory pay.
- 6 weeks of holiday is not normal. Normal would be about 4 weeks.
- The state pension is £185 per week. Nearly everybody contributes a decent amount to a private pension too.
The legal minimum is 20 days plus 8 public holidays. I don't know anyone in a white collar job who gets fewer than 25 (+8) days off, and in the public sector 30 seems to be the low end.
It used to be that mothers were entitled to maternity leave which broke down as: - 6 weeks at 90% of your average pay - 33 weeks of statutory maternity pay (£156/wk) - 13 weeks unpaid
Now parents can opt for shared parental leave, effectively sharing that time off entitlement: https://www.gov.uk/shared-parental-leave-and-pay
The US has a government pension. That is (part of) what "Social Security" taxes pay for.
The state of the NHS for the last 2.5 years means that you effectively need to pay private (whether out of pocket or through insurance) if you want any chance at decent, timely healthcare.
There are many ways to define and measure this (mean vs median, pre vs post tax, everyone vs just fulltime), so I don't know if the numbers are directly comparable, but US median earnings are $45K[1], which isn't that much different, especially once you take into consideration differences in government benefits.
[1] https://www.census.gov/library/publications/2022/demo/p60-27...
That 150k, assuming pounds, is a bit under five times the normal median income. Assuming dollars, the same number would be true for the US.
UK wages aren't low. You're rich.
I must live an economy lifestyle to put anything aside - taking care to not heat my home too much, to never eat out, and not buy any luxuries. And on some months when I need private healthcare (as the NHS has collapsed to the point that some urgent appointments have months-long waiting lists) or dental costs, I have to dip into those savings.
I'm leaving the UK as soon as I have savings to do so. But it might take a while. I feel a lot of empathy for people earning around the national average salary. I don't know how they'll survive the Winter without using savings or going into considerable debt, especially those who have dependents. I am privileged to at least not go into debt and realistically think about leaving this country.
Regarding the London fintech experience, you are right, it is comparable to Mountain View. The financial industry in London is a well known exception to the rule when it comes to salaries in the UK.
I'll use Discover Card as they are a financial services company in both the US and UK.
According to Glass Door, a Senior Software Engineer with 15 years+ earns:
UK: £90-100k
USA: $120-140k
Even at the top end of finance, with the most experience you will struggle to break the £100k wall in the UK.
As someone who has worked software in both the US and UK, you are more likely to find upper management in the US who can see their software as a competitive advantage.
In the UK I've seen upper management in fintech startups embrace the advantages, but not in larger organisations.
US society has even more inequality than the UK. In fact, as a Brit, it was really strange to hear that President Biden disagreed with the UK's tax cuts for the wealthy -- doesn't he realise that the US taxes its rich significantly less than we do? It seemed absurd to me but I felt that he probably realises that it's in America's interest to continue to attract highly skilled workers by taxing them less, and would prefer if the US continues to have a monopoly on this advantage.
The average salary in London is higher than £38k, but it's definitely not high enough to buy a property here. You likely need to be making upwards of £150k to buy a house. That is quite possible at a hedge fund, HFT or prop trading firm, but I don't know any other jobs that pay well enough for home ownership in London. Of course, if you have dual incomes and are happy to get a heavily mortgaged flat and live on the outskirts of London then you have more options..
London real estate is notoriously expensive and it's not a practical way to measure wages.
The top rate of tax on earnings over £150k (until the pound crashed recently would have been around $200k) applies to roughly 600,000 workers. The UK has a population of 68M. If you earn upwards of £150k, you're rich.
> In my mind that salary does not make anyone rich, I mean that's a low to mid level engineering salary in the US. Basically almost any US professional (lawyer, doctor, engineer etc) is going to make that or much more.
When your world is tech and you're familiar with the salaries on offer, it's easy to lose sight of life for people who aren't inside that bubble. Your point of comparison is wildly skewed.
https://www.cnbc.com/2022/09/11/how-much-money-you-need-for-...
what I am getting it is not a critique of the UK, its just that housing, cars and alot of other things are wildly expensive compared to what people make(in the US and UK). And in the US alot of folks I know are making at that level or above and are solid blue collar, police and firefighters, and electricians, or nurses(they are based in the bay area so that may skew things)
The article is specifically highlighting the most expensive cities to live in.
Housing is becoming increasingly unaffordable and if you want to live alone in one of the most expensive cities, you'll need to be rich (compared to the average citizen).
If you already live in one of those cities, your point of reference is other people also capable of sustaining themselves in that environment.
London in general has way-way-way-more-than-median-income-can-afford residential real estate.
London itself (not Greater London) is roughly 1/8th of the total UK population.
If your metric for affordability is whether a single (local) median salary can afford a residential property, then almost nowhere in England is affordable. This is clearly a problem, but not unique to London.
This time and time again. Income does not equal wealth. Sure over time you can build your wealth and become rich, but not really if you earn £150k.
It takes awful lot of work to get to that level. You are probably be in your 30s or 40s when you start making this much. If you come from working class, then you are unlikely going to have any sizeable assets until then.
£150k gets you "only" £7.5k net. If you want to actually enjoy life and fruits of your hard work, then you don't want to live in a flat share, you want to go out sometimes etc. In London, £3-4k rent for a decent home, nothing luxurious is a normal price. Bills, other outgoings probably £1-2k. You also want to save some money for retirement. With that kind of money, you are realistically looking at £2k of disposable income. To put that into perspective - if you put £2k each month into your savings account, it would take you about 40 years to save your first million.
This salary is really nowhere near making someone rich.
People are often confused, because they see an actual rich person that is making this much money, but they are not rich because they have such a job. They most likely inherited their wealth or they get money in other ways.
100% agree. You can have a high income and choose to live beyond your means preventing you from accumulating wealth.
We're debating income taxes and thresholds however so that's the metric we have to use.
Those on £150k+ are in the 98th percentile.
This metric is no longer meaningful, as in 99th percentile you'll have someone making £1.5m+, which is a world's difference.
> You can have a high income and choose to live beyond your means preventing you from accumulating wealth.
What I described wasn't living beyond one's means. It would be that if a person started engaging in taking loans and credit cards and buying things they can't really afford etc. Simple living adequate to earnings, at a £150k, won't make you rich.
We're debating various degrees of rich. If you earn more than 98% of your working peers, I don't know what else you could call that.
People make choices with their money. Living alone in an expensive city is a choice. If you choose to do that on £150k, you're going to have far less disposable income than others on that same salary making different choices.
I have very little sympathy for people who blow all of their income funding a lifestyle they can't afford to project the appearance of wealth and status.