The Economy In 564 Words
First Published: Newsletter 09/03/20
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One of the most talked about measures of the economy is Gross Domestic Product (GDP). I am sure everyone knows about it, but do we all truly understand this measure that gets economists so horny?
In plain english GDP is a measure of output. In even plainer english, If someone in the UK chops down a tree and builds a table, then sells the table for £100, thats £100 towards the GDP of the UK.
GDP in the UK is calculated by the Office of National Statistics, an independent stats body that does a range of studies, from house prices to age distribution. They calculated GDP by simply sending out a survey that asks businesses how much they have sold and bought.
We can find out how much is produced in the country and that's it. Often politicians and journalists use GDP figures to make judgments on improvements in quality of life. However, this is either misguided, or malicious misrepresentation.
When we talk about a country's GDP especially in a country like the UK, it is very convenient to overlook where this economic output is created.
The GDP in the UK is around £2 trillion. Which is great but almost 25% of that is produced solely in London and most of the rest is in cities in the south or midlands, while the northeast is only contributing 3% of output to the national economy. This trend represents the lack of opportunities that are systematic across the country. This tendency to concentrate wealth production to such an extreme is an issue that could have been resolved decades ago at the dawn of the digital age but for thatcherite neoliberalism. New-labour tried to patch over this geographic inequality by using public spending to give stable employment in the worst hit areas, but they never addressed the systemic issues that caused the inequality and allowed it to fester for so long.
One of the key drivers of this was de-industrialisation. Since the 1970s manufacturing output has actually been mostly steady, but technological progress (robots) has produced a reduction in employment. Instead the last forty years has seen massive increases in GDP output in the services sector. With areas like finance, business support services and real estate gaining the most. In fact, the real estate sector is the largest sector, making up 14% of the national economy, while employing less than 1% of the workforce, the profits concentrated in London, of course.
Over the last 40 years there has been a financialisation of housing. Housing has stopped being a basic human right but instead become a commodity that is used to store and generate wealth. With the majority of the UK loans now funding mortgages and an ever growing rental market, housing has become a tool, with which banks and landlords, use to gain ever increasing control of the country’s GDP.
Overcoming this inequality is not an easy task. Re-Industrialisation through a socialist green industrial revolution would go a long way to providing good jobs which give more control to workers, but alone this can only go so far. The only sustainable economic model is one where the economy is democratically controlled by the workers.
The challenge lies in having a libertarian socialist vision for the service sector. Tackling the systemic issues of these industries is key to any leftwing movement of the 21st Century.