Britain is one of the richest countries in the world, and yet in so many vital places we are short of money.
Why?
Our health, education and social care systems are struggling, nearly a third of children live in poverty while food banks, endemic low pay and unaffordable housing are what we’ve come to expect. So are we not as rich as we thought we were, or are we just not managing those riches in the right way?
Well, we’re definitely rich. The British economy produces well over £30,000 per person in money terms every year, and almost as much again in non-money value. So it’s OK to expect that everybody will be safely housed and have enough to eat, will be looked after when they are sick or old, and receive a good education that allows them to lead useful lives.
But we’re definitely not managing our wealth properly, and that’s because we’re not thinking of it in the right way. We’re confusing wealth with money, producing far too little wealth because we focus far too much on money.
Wealth and money are very different
Think of money like rain. It waters the garden of the economy, which is where people do useful, productive activity. But it does that best when it comes only when it’s needed, and is evenly distributed across the whole productive area.
Too little rain and the plants get stressed. They put all their efforts into trying to survive, instead of blooming and fruiting. Too much rain and the plants get spoiled or even washed away. In the UK economy both these things are happening. A large part of the garden is experiencing drought, while another part is flooded with more water than it knows what to do with.
The drought is in health, education, public services and family incomes, all of which are experiencing conditions of stress, and were doing so well before Covid-19 came along. When families in full-time work have recourse to foodbanks, it’s safe to say that not enough rain is falling in their part of the economic garden.
The floods are in the asset markets, which means property (including housing) and financial investments such as stocks and shares. Wealthy people have so much money they are trying to find a home for that the only way it can be absorbed is for asset prices to rise. And when the prices of assets such as houses rise, the drought that people are experiencing in their incomes just gets worse.
So wealth and money are very different. Wealth is what we produce when we do things that create value. Money is supposed to make that easier, like water in a garden. If we focus on wealth, everyone benefits, but instead the economy is focused on money-value, which is grinding down the productive economy and exhausting so many of us along the way.
Consider the following:
Financial services, which re-allocate wealth created by others, make up the biggest part of our economy.
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Housing, which is an essential, like food, is now mainly thought of as an investment asset.
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Services such as health, education and the care of the elderly, which have immense real value, are treated as a cost to be kept as low as possible.
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Services such as energy and water have been given over to commercial suppliers whose object is to cut costs and make a money profit.
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Vast quantities of surplus money are now stashed away inaccessibly, controlled by a small number of super-rich corporations and individuals.
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The financial markets now have so much power that the government is forced into policies to keep them on-side, regardless of whether they are beneficial to our wider society.
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Much of the activity in the economy is either making money out of money or helping other people to do so. It is busy clocking up transactions, but not actually creating any real, new wealth at all.
These are all symptoms of a degenerative economic sickness of which Britain, the oldest industrial economy in the world by miles, is the stand-out example.
It eats away at an economy from the inside, until there’s nothing left but the outer shell. At that point the economy still looks rich and powerful, but it’s ready to collapse as soon as any major pressure is applied.
A sick economy in numbers
In the decade after the financial crash of 2008, money in assets increased in Britain by 40%, excluding inflation. That’s over four trillion pounds, or £15,000 per household per year, on average, although most households will have seen little of that. In the same period, average household incomes did not increase at all. Here’s the graph that shows it. The source data comes from the Office for National Statistics.
You have to ask why, if the UK’s wealth increased by such a vast sum, it’s public services were subjected to ten years of severe austerity? The answer is the economy is sick and the system is malfunctioning, pushing all its resources to where they are not needed and can only cause harm.
It’s impossible to reverse that process without first fixing the underlying system, otherwise it just starts happening all over again. So we have to change the way money is introduced into the economy, blocking up some of the routes that direct it straight towards assets and creating new paths that allow it to flow towards real productive activity.
It means a new approach to trade, banking and financial services. It means a new way of valuing work, whether it is paid, voluntary, or in the home or community. It means a new approach to the way that land is provided for housing, and it opens up the way to transformative policy initiatives such as the Universal Basic Income. And over all of that it means a new way of measuring and valuing economic activity, not just as a sum of money but in terms of the benefit it brings both to humanity and the environment upon which humanity depends.