Signs of deep shift in the economy
The price comparison site uSwitch got quite a lot of PR at the weekend for a report which said that UK disposable income had fallen to its lowest level for ten years (the report’s not on their site, but there’s a reasonably detailed summary in the Telegraph.) The coverage is generally about consumers running to stand still. But I wonder if this – along with some other economics trends – is a sign that we’ll have to change some long-standing assumptions about the economy.
There’s precious little detail about uSwitch’s methodology, and obviously the company has its own interests (as does the Telegraph) in directing people’s attention to the increasing costs of household bills. The four areas where costs have increased are petrol, phone costs (mobile in particular), housing costs and direct and indirect taxes.
One of the core underlying assumptions of consumer economics is that as people get richer through economic growth they spend less on basics and have more disposable income to spend elsewhere. There’s a switch away from goods, and towards services. But the uSwitch data seems unlikely to be a blip. It’s possible to look at the current energy markets and think that the current petrol price (and heating bills) will seem quite modest in a few years time, that Chinese food demand will push our food prices up, that insurance premiums will increase, and that the costs of care are likely to rise in ageing fragmented societies – with tax rises close behind.
And there’s more. In the UK (if not in France and Germany), the prevailing assumption has been that the manufacturing sector will wither as our economies move towards services. (It’s quite hard to tell whether this led successive governments to promote the financial services sector, or whether it was an ideological ‘frame’ which supported a policy which was in the interests of Britain’s financial sector, which has been disproportionately influential on policy since the days of empire; but I digress).
Whatever the trend, recent manufacturing sector figures suggest that reports of the sector’s death have been exaggerated. Although manufacturing has shrunk as a proportion of the overall economy (to 14% in 2005), it has grown in absolute terms (up 28% since 1990). It still also represents a disproportionate share of exports.
And the extreme growth of the financial services sector (to a whisker under 30%) now seems as if it might have been dependent on regulatory regimes which were benign to the point of being cavalier. It seems likely that – as the credit crunch works through into policy changes – that at the very least the laisser faire regulatory regimes which have removed so much control from the sector, to its huge advantage, will get tighter. (High levels of consumer debt in the UK and US will also, at lest in the short term, provide constraints on growth).
Suddenly, our assumptions about economic behaviour seem to have been contingent on our economies not being limited by resource constraints – and on public policy which chose to be benign – or myopic – about the risks of a relatively unconstrained financial sector: neither assumption looks so good any more.