I am often asked, after my talks or on social media, to pass a judgment on the stability, or lack of it, of a particular country. For example, looking across the Atlantic to the United Kingdom, one sees a lot of parallels with the crisis we are currently living through in the US. The rise of populism, increasing fragmentation of the political landscape—do these similarities reflect deep structural trends below the surface? Such questions can only be answered with a proper structural-demographic analysis.
A research team based in Moscow’s Higher School of Economics recently published such an analysis in Cliodynamics. The article by Ortmans and colleagues brings a wealth of quantitative data (with over 30 figures) to inform our understanding of social pressures for instability in the UK. And it shows that similarities between the UK and the US go deep below the surface events.
As I explained in Ages of Discord, one of the most important factors in the structural-demographic analysis is the balance between the supply and demand for labor. The American economy has been operating under the conditions of labor oversupply since roughly the 1970s. The main causes were immigration, the entry of massive numbers of baby boomers and women into the labor force, the export of jobs overseas, and a few others (see a series of blogs I wrote on this).
Ortmans et al. show in their article that the UK developed the conditions of labor oversupply also during the 1970s, and for very similar reasons. The shift from labor undersupply to oversupply in the UK is clearly visible in the data on unemployment rate. While before 1975 the unemployment rate stayed below the four percent level, after 1975 it never declined to that level again:
Charts in this post are by the author, using data from the Ortmans et al. article
Labor oversupply is only one part of the story. To understand the “extra-economic” factors we need to go even further back in time than the 1970s.
In the United States persistent socio-political instability, peaking in c.1920, resulted in an adoption of an unwritten social contract between the labor, the capital, and the state which ensured that workers would get their fair share of the economic growth (see Chapter 10 of Ages of Discord for details). This social contract unraveled during the 1970s.
In the UK the timing of the shifts in the social norms and institutions that regulate labor-capital relations was very similar. The first shift is vividly represented by the rise of the Labour Party, which really took off after 1910:
The second shift was signaled by the rise of Reaganomics in the US and Thatcherism in the UK, which resulted in determined attacks on trade unions by governments and employers, epitomized by Reagan’s victory over the Air Traffic Controllers and Thatcher’s breaking of the National Union of Mine Workers. As a result, the participation of British workers in trade union has been declining since the peak of the early 1980s:
As workers and their institutions lost political power, they similarly lost economic power. This trend is quantified by the “relative wage”—median (typical) wage divided by GDP per capita, which tells us what proportion of gains from economic growth goes to the workers. Until 1975 relative wage fluctuated around a constant level, but between 1975 and 2015 it declined by roughly a third:
Other UK structural-demographic variables (economic inequality, elite overproduction, mass-mobilization potential, and intraelite conflict) also followed trends that were very similar to those in the US (see Ortmans et al). What accounts for such a remarkable degree of parallelism between the two countries? Note that such synchronized structural-demographic dynamics are not a foregone conclusion. Although all countries in the world are affected by the same global trends, which tend to make their internal dynamics to converge, there are many internal reasons, most importantly, differing histories and cultures, that work against such synchronization. As an example, France, just across the English Channel from the UK, also an economically developed liberal democracy, resisted the trends that we saw in the UK (and the US). In particular, economic inequality in France stayed roughly constant until recently, although in the US and the UK inequality has been growing for nearly 40 years.
Ortmans and colleagues offer an answer—the rise and rapid triumph of neoliberalism, which happened during the same period in both countries. It would be interesting to make a formal test of this hypothesis. If we can develop a quantitative measure of the influence of neoliberal ideas over the minds of various governing elites in European countries, then would it correlate with the increased economic inequality and other structural indicators? This would be a very interesting project.