The UK’s economic recovery doesn’t have to be this painful – there are other ways out of this crisis

Yesterday the Office for National Statistics confirmed that Britain’s economic growth had slowed for the sixth consecutive month, reaching just 0.4 per cent in October. The growth rate is expected to be negative for November following nationwide lockdown restrictions.  

The government seems stuck between a rock and a hard place during this pandemic: Allow production and consumption to resume, and be blamed for an overwhelmed health service and thousands of avoidable deaths. Or restrict economic activity to halt the spread of the virus and take the rap for rising joblessness and hardship.

Fortunately, these do not need to be our only options. Our current economy is dependent on GDP growth for its stability. If our output flatlines or shrinks, the economy can quickly topple into crises of unemployment, debt and inequality. But this is by no means inevitable.  

In a study published last week by the University of Leeds, we highlight four key factors that contribute to our growth dependence and discuss how to improve the UK’s resilience in the face of economic contraction as part of our Covid-19 recovery.

One of our most important conclusions is that the hardship often associated with slowing growth can be alleviated by diffusing the power of “rentiers”. Most people have to rely on their labour to earn a living. Rentiers by contrast have the power to extract rents through control over scarce or monopolisable assets like land and housing, energy infrastructure, finance, and intellectual property.  

Rewards for rentiers inevitably come at the expense of those with less power – be they tenants, debtors, workers, smaller competitors. As long as the rate of economic growth remains higher than the rate of rent extraction, the injustice of the latter can be masked. But if GDP flatlines, while rent extraction continues, the inevitable result is rising inequality and hardship.  

This dynamic has played out most obviously in the housing market, where landlords have been under no obligation to take their share of the hit from Covid-19 by offering rent reductions to struggling tenants, despite being entitled to mortgage payment holidays themselves.  

With rent arrears mounting and tenants unions growing in membership, such protections for the rentier class will come under increasing scrutiny. What is the justification for hurting the poorest tenants by freezing housing benefit, when the government could control the benefits bill by introducing rent controls instead? Rent controls might sound radical, but they are common across Europe, and polls suggest they would be extremely popular in the UK.  

Tenants’ rights are just one piece of the jigsaw. In the study, we also discuss how to reduce rent extraction by correcting biases in our tax system. We show that working hour reduction can be a powerful tool for maintaining employment, that better regulation of lending can reduce our exposure to debt crises, and that strengthening our social security safety net and investing in better public services can ensure that needs are safeguarded in the face of economic contraction.

Building resilience in these ways is critical, not only to facilitate effective pandemic management, but also to give policymakers the confidence to tackle the environmental crisis. We urgently need government leadership to protect wildlife habitats, keep climate-wrecking fossil fuels in the ground, and end our throw-away culture. But the spectre of shrinking or stagnating GDP has repeatedly been invoked as a reason to block the policies that are needed.

Pursuing what might sound like a modest target of 2 per cent GDP growth per year implies doubling the scale of our output and consumption every 35 years. A recent comprehensive review of the science, concludes that it will be virtually impossible to get back within planetary boundaries (limits that keep our planet hospitable to modern life) whilst growing our consumption at that kind of speed, even with ambitious changes to our infrastructure and technology.  

Our dependence on growth is thus a dangerous straightjacket. When certain forms of economic activity imperil our health and wellbeing, or the living systems upon which we depend, our governments must have the confidence to scale back those activities — without fear of triggering an economic crisis. That confidence will only be found if we escape our growth dependency. The economic ruptures of Covid-19 offer an opportunity to start that process of transformation.  

Beth Stratford is a PhD researcher at the University of Leeds, and a fellow at the New Economics Foundation