The Structural-Demographic Roots of the UK Crisis

Peter Turchin

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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:

Source: Wikipedia

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.

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Edward Turner

What is the key neoliberal idea? It cannot be “limiting government interference in the operation of free markets” because this has occurred only at the national level. There has been plenty of government interference at the regional (e.g. EU, UNECE) and international level. So the key neoliberal variable would have to be something that is not subject to fractal scaling.

Vic K

Is neoliberalism the cause, of the symptom (of some other underlying cause), though?

I would suggest the following approach based on recent advances in “data science.” In the popular literature available in shifting media sources over the past century (or two), scrape articles from digitized sources in economics, politics, etc. and then classify some of them on a scale of increasing neoliberalism. Sources so classified willS constitute a so-called “training set.” Then build an index and test it on articles not already seen (methods for this are well known to “data scientists”). Using this index, measure its progress since, say, 1920 in the US, UK France, etc. Note that what I’m proposing is a so-called “classifier,” that is an algorithm (generally nonlinear) that reduces text content to a continuous scale.

Of course, one first needs to define “neoliberalism” according to criteria that would allow more or less consistent scoring. And the best one can expect is that this index would be a “concomitant” variable that measures certain social dynamics accompanying SDT cycles. But it would be a step in the right direction.

Tashkent

A key difference between classical Liberalism and Neoliberalism is the latter’s recognition that ‘free markets’ are not natural, that it is governments that must impose and enforce their utopia. They seek to control government, and once it has done their work they transfer its powers to supranational institutions which are beyond democratic control.

Paolo

Can be introduction of tax cut and deficit spending, a proxy of acceptance by gouvernement elite of neoliberalism? For Italy both arrive in 1983 with Craxi. And 1983 was also the First year of growing inequality, without interruption to 2016

Edward Turner

//Neoliberalism sees competition as the defining characteristic of human relations. … It maintains that “the market” delivers benefits that could never be achieved by planning.//

United Nations Agenda 21
https://en.wikipedia.org/wiki/Agenda_21

Also Kyoto Protocol and Paris Climate Treaty etc.

MIFID
https://www.esma.europa.eu/policy-rules/mifid-ii-and-mifir

UNECE vehicle regulations

https://www.unece.org/trans/main/welcwp29.html
https://en.wikipedia.org/wiki/United_Nations_Economic_Commission_for_Europe

Many examples of supra-state market planning that deeply affects nation-states. Free markets don’t exist. If neoliberalism is defined as that it has never existed.

Within states there has been a philosophy of neoliberalism as ‘competition’ and between states or over states there has been over-arching planning, a philosophy of ‘cooperation’. The planners have been the big banks and corporations, deep states of various countries, powerful families and individuals.

People have only experienced the ‘competition’ not the benefits that accrue with cooperation, which, have entirely benefited globalists. More cooperation within states inevitably requires more competition – less planning – amongst international actors.

The best way in my opinion is not to swing too much in either direction at either fractal scale. Don’t eliminate competition and don’t squash cooperation either. There needs to be this persistent quasi state where both exist in dynamic interaction.

The Inimitable NEET

At this point I don’t see any definition that’s simultaneously singular, lucid, and sufficiently descriptive. You could try to apply Tom Pepinsky’s curt definition of neoliberalism as “an ideology that rests on the assumption that individualized, arms-length market exchange can serve as a metaphor for all forms of human interaction”, but that’s overreaching in theory and practice.

In general, any analysis of “neoliberalism” needs to distinguish its stances on economic policy from the social and epistemological inferences derived from the former. While nominal Leftist parties repudiate it for its instrumentalization of human life and winner-take-all division of profits, neoliberalism’s stress on autonomy and the necessity of an extensive technocratic + bureaucratic state to nourish and shield the market from disruption mesh nicely with their sociocultural aims. It’s a major reason why the progressive ethos is endemic in places in Google and other corporations.

Ross Hartshorn

So, it seems like union membership as a % of the workforce could decline for, broadly speaking, two reasons:
1) a change in which industries account for how much of the workforce (e.g. auto manufacturing tends to be more often unionized than computer programming, so if the child of the auto factory worker becomes a programmer, the % union membership goes down).
2) a change in government policy, which would be more related to the rise of neoliberal ideology as a guiding force for government policy.

If there is a good data source for union membership by profession or industry, then looking at union membership in, say, truck driving or construction or auto manufacture across time and between countries ought to give a proxy for neoliberal ideology.

It also could simply be the % of GDP which is non-military government spending, since neoliberal ideology tends to advocate reducing that. One test of this would be if the union membership (within a given sector or profession) and % of GDP which is non-military government spending, are correlated across decades and across countries. If they are, then it might be reasonable to suppose that some third factor (ideology) is driving both of them.

Paolo

Neoliberalism advocate to cut gouvernement spending, but after Regan recession they do the opposite: “starve the beast” was added to “Two santa” where the beast Is welfare state: the idea Is that if Gop lose election, dem can only cut walfare or introduce higher tax in both case paying the political cost (Sorry for my english)

A C Harper

That’s a reasonable top down view… but what about a bottom up view? Many people became disenchanted (anecdotal assertion) with the work that unions did for their members. Many of the aims of unions were fulfilled by the Government (in the UK), and union leaders became embroiled with spending their members subscriptions on worthy causes elsewhere. Many unions simply priced themselves out of their members willingness to pay.

al loomis

when the ‘lowers’ only have economic tools to resist, they are likely to succumb to the ‘uppers’, who have law and state levers of control. democracy is the answer, though no one in usa seems to see the need.

Lorenzo from Oz

Speaking as an Australian, I find the characterisation of neoliberal policies by Reagan and Thatcher as a key factor deeply implausible. Australia experienced, if anything, a more thorough shift to privatisation and key deregulations than either the US or the UK and has a much higher rate of migration than either. Yet we do not seem to be showing much in the way of deep social angst.

First, migration in Australia has a much longer history of being a deliberate policy. Australia’s migrants have slightly higher rates of human capital than the residents. So migration in Australia does NOT change the balance between capital and labour: I suspect that is the key variable rather than migration per se.

Second, there has been a loss scarcity premium in labour in Western countries generally as a result of globalisation. One suspects that is a much more serious factor in explaining the breakdown in the “consensus” period.

Third, “neoliberal” policies (and if you are going to use it as an analytical term, some definition seems required) in the Antipodes were largely brought in by Labour (i.e. social democratic) governments with the aim of creating a sustainable welfare state. Given that deregulation in the US started under Carter, with the deregulation of air routes, and neoliberalism continued in the UK under Blair, perhaps less demonisation of Reagan and Thatcher might be appropriate.

Fourth, the “neoliberal” period in world history has seen the greatest movement of people out of poverty ever known. Possibly, such policies have an appeal that cannot be explained away by overweening ideology or rampant greed.

Fifth, talking of “Keynesian” policies seems a bit overdone. Old style Keynesianism lost traction in mainstream economics because certain key claims did not stand under empirical scrutiny. Hence the development of neo-Keynesianism.

Sixth, trying to characterise France as immune from deep social divisions seems patently ridiculous. See the rise of the National Front and the “yellow shirt” protests. Thomas Piketty’s analysis of the way centre-left politics shifted from working class to educated-elite politics provides a key explanatory variable which is left out by the over-emphasis on commercial elites.

Lorenzo from Oz

Thomas Piketty’s paper on the rise of the Brahmin Left is here:
http://piketty.pse.ens.fr/files/Piketty2018.pdf

I regard it as the most important single paper to read to understand tends in postwar politics leading us to the current situation.

Swami

I agree with Lorenzo, and have serious doubts about just about everything Turchin has suggested, above.

First, everything I am familiar with suggests that the trends on labor share of GDP is that it is a global phenomenon that has absolutely no correlation with union or corporatist patterns. In other words it is not about “losing political power” as it was true even in the heavily unionized countries. See this chart, which includes France.
comment image

Everything I have read is that it is a response to the apogee of workers entering the global market in China, India and SE Asia. Never before have a billion workers entered at one time. There are papers summarizing this effect by Autor, Dorn and Hanson on the China shock. In brief, a sudden surge of labor reduces the demand of labor, vs skilled labor and capital. For those familiar with economics, it is the system providing feedback that we need more capital and skilled labor (to capitalize on all the new less skilled labor). This has led to substantially higher global median incomes, substantial (indeed unprecedented and previously unimaginable) reductions in global poverty, increases in inequality between skilled and unskilled labor and greater returns to global capital.

My take on the issue is that Turchin is confusing cause and effect. Thatcherism, Reaganism, neoliberalism and the widespread decline of non public unions were in great part responses to increased global competition, first from less developed places in Europe and Japan, and later even more so from the rise of SE Asia.

In total, this trend was the greatest advance of humanity in the history of humankind. But, as with all trends, there are relative winners and losers, and the actual rate of increase in living standards was slowed in developed nations for less skilled individuals due to the above competitive pressures. It has also probably contributed to the rise of populism, for obvious reasons.

R. N. England

Taking this useful comment a bit further, the surge of labour was not just any old labour but productive labour. That was a consequence of government-funded universal compulsory education, but not just any education. Productive output and delivery of exportable goods is a matter of engineering, based on STEM school subjects, and of foreign languages and the knowledge of foreign cultures necessary for trade. Every humble factory worker is a low-level production engineer. The people running China have been engineers. The kind of stuff that passes as education these days in the West produces little more than plagues of lawyers and accountants.

Karl

From 1950 to now UK turned from a white Christian country into a mutiethnic, multireligious society. This change does not enter into the analysis of UK’s stability. Why?

Is there reason to assume that this change has no effect at all?

Peter van den Engel

In my defenition neo liberalism would just
mean: anyway you can find for survival, by making money proves itself to be (economicly) right.
Which is sort of a parallel with natural existence, but actually is a very blunt devider because reality cannot exist containing just one, especially not if it is overlooking or denying the actual parallels at play.

What happened can be described very simply, if you take the proper differentials.
The first economic expansion was created by inventors and creative entrepeneurs/ than followed by the opposite direction that of accountants. Which is reducing to get more profit.
This coincided the Reagan Thatcher era, when banks were allowed to create more credit. But credit must always be based on debt, so you get two inverted relations at the same time.
When labor supply is shrinking because of outsourcing, digitalisation and consolidation: mergers anf take overs, it cannot bear increasing debt.
So the formula gets an inverted effect to what was expected.
Labor oversupply is also directly related to a los of diversity/ or indeed more fractions being involved in the same thing as you mentioned.
It is not just the fact people would like to earn more/ but that while the material economy has reached its endpoint in expansion, there still needs to be invented an overlappping function in a labor type which is not material anymore and does not need to overproduce standard products anymore/ while that’s the only connection the money system recognizes, which calls itself neo liberal, if that means random.
So you need a better alternative system, no longer related to debt.

Matt

Much as others in the thread, I would argue changes in income are mostly about different exposure to international trade, not a preceding change in “political will” in government. Roughly, the history:

The UK experiences strikes and disruption through the 1970s (“Winter of Discontent”), but this is not really a response to deregulation or “attacks” by politicians (under the Labour Party!) following weakening of union and pro-labour institutions, rather the low competitiveness of British industry and over-staffing following world industrial convergence.

Similarly, income growth is higher with higher education in the 1980s period (and then sticks at a steady level), because of a strategy shift to services and deregulation / tax reform within that sector, at same time as decline of competitiveness within manufacturing+extraction and as a response to it.

Workers are somewhat compensated for the above transformations via opportunities to buy cheap housing and then restriction of housing supply to amplify price, allowing older workers to capture growing wealth despite decreasing relative employment income distribution (so rise in income inequality is accompanied by political stability from 1980-2008, since the wealth spread is rather more equal than income inequality would imply).

But eventually young cannot afford to buy in or obtain mortgages in areas where income growth is continuing and they lose faith in capitalism (increasingly viewed as a scheme to extract wealth from young workers via vast rents), hence current crisis of anti-capitalist youth movements.

Story of income shocks from globalization and the really the expansion of trade with the European Union (following “Les Trente Glorieuses” in Western Europe then expansion of EU to the east), with immunity from this to the “Baumol Effect” professions and services but not Working Classes employed in tradeable sectors, combined with generational inequality in housing wealth. Not the story “capturing” of income growth and income inequality, or of a changing of the political will towards inegalitarian policies.

Peter van den Engel

No, that’s right/ but inflated real estate blocks cultural mobility anyway and the imagination of a brighter future is gone because the material economy no longer embodies that perspective.
It has.much more to do with the ‘psychology’ of reality than anything else.

Maxim Kuschpel

Peter, thank you, I enjoy your blog immensely, as my background is in economics and medicine and I cherish the different levels of that you use to look at society and human beings. In the end you pose a question:

“What accounts for such a remarkable degree of parallelism between the two countries?”

Could it be because of joint factors stemming from the underlying physical economy with some countries being more susceptible to them than others?

i.e. : https://ourfiniteworld.com/oil-supply-limits-and-the-continuing-financial-crisis/

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