Our economic model is broken. We are in the middle of the longest stagnation in earnings for 150 years. Young people today are set to be poorer than their parents. We have the richest region in Europe – inner London – but most British regions are now poorer than the European average.
These are symptoms of what Jeremy Corbyn called “the new common sense”: a recognition of the systemic weaknesses of the British economy and the need for deep-rooted reform. As Theresa May herself noted, we have an economy which “is not currently working”. Yet even as the economy is failing in the present, a decade of disruption is approaching that will present profound challenges in the future. As IPPR’s Commission on Economic Justice argues, the forces set to reshape our economy in the 2020s makes the case for a new approach to economic policymaking all the more compelling.
Brexit of course dominates discussions of our prospects. While the impact in both the short and long term is uncertain, key sectors are highly exposed to EU trade and labour markets, and the wider economy is powerfully shaped by the EU’s regulatory regime. Whatever new partnership the UK secures with Europe, Brexit will transform Britain’s economic governance and trading relationships, with critical implications for our future prosperity. Yet Brexit is only one disruptive force among several. The effects of globalisation, technological change, an ageing population, and environmental breakdown will create profound challenges and opportunities in the decades ahead.
The nature of globalisation is evolving. As a percentage of global output, trade is no longer increasing. Yet economic power will continue to shift eastwards in the 2020s. By 2030, 30 per cent of all global trade will be between emerging markets, more than double their share today, and over 40 per cent of the world’s consumption demand will come from Asia. China alone is expected to have 17 of the world’s top 50 cities by GDP in 2030, more than either North America or Europe. Over 40 per cent of the world’s consumption demand will come from Asia. Trade in services, much of it digital, is also expected to surge: a projected three-fold increase from $4.8 trillion in 2015 to $12.4 trillion in 2030, compared with an expected doubling of trade in goods in that period. The changing character of globalisation will present opportunities, but also competitive challenges, for the UK’s position in the global trading system.
Technological change, meanwhile, has the potential to hugely improve living standards, but only if we manage to ensure that the gains are fairly shared. Automation will transform work rather than make it redundant. If we can accelerate the adoption of advanced robotics and AI, the potential productivity benefits are dramatic. Yet they risk further polarising the labour market and increasing the share of national income going to capital rather than labour. Accelerating inequality rather than mass joblessness is therefore the outcome against which we must guard against in the 2020s. The continued rise of digital platform monopolies – the dominant organisational form of contemporary capitalism – is likely to further concentrate economic gains and will drive debates about how data should be governed. New models of open data and common ownership will therefore be required to ensure the machine age is one where abundance is matched with justice.
Demographic change, both in the UK and globally, will also profoundly shape our fortunes. At home, the population aged over 65 is forecast to grow by 33 per cent (from 11.6 million to 15.4 million) by 2030, compared to just 2 per cent for the working age population. This will drive demand for increased spending on health and social care and pensions, with a structural fiscal deficit likely to re-emerge in the 2020s unless we rethink our approach to public taxation and spending, as well as migration. Globally, an ageing workforce will provide a strong headwind to growth. Indeed, as a result of an ageing society, even at historical rates of productivity growth – which would require a significant improvement of productivity performance from the post-crisis trend – it is estimated that economic growth could be nearly halved in developed economies in the next thirty years, causing a decline in historic GDP per capita growth rates. In other words, we are entering a slower-growth world due to ageing unless we can radically improve productivity.
All these changes will take place within a new geological epoch, the Anthropocene, where human impacts are the dominant influence on the Earth’s natural systems. So damaging and profound are many of these impacts that critical global and local environmental thresholds are likely to be breached in the 2020s. These include destabilising climate change, biodiversity loss, disruptions to nitrogen cycle, air pollution and global habitat loss. Ensuring we live safely within the Earth’s “planetary boundaries” will require a transformation in the way today’s economies are structured, including a more or less complete decarbonisation of energy, transport and industrial systems.
Brexit then is only the firing gun on a wider decade of disruption. As the UK negotiates its new place in the world, an accelerating wave of economic, social and technological change will reshape the country, in often quite radical ways. In a world increasingly transformed, the status quo will prove inadequate. The challenge for all of us is to better understand the changes coming so as to more effectively shape the economy towards a more just and sustainable future.
This blog originally appeared in The Independent.
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