Trump and the Everyday Economy
The Democrats lost the Presidential election because of the immediate economic experience of households. Economic policy and politics have to work together- there are lessons for the UK.
This is not a long post-mortem of the US election you’ll be pleased to hear. It is more a “what next?” for the future of UK politics, policy and economic development. Having said that, it is not the piece I was intending to write, not because the outcome of the US election was not a possibility but because there is a very clear lesson that comes from it.
The result of the US election massively emphasised the importance of the everyday economy. It is the part of the economy where you will find the largest number of people, in the American vernacular, living “paycheck to paycheck”. It requires much bigger politics and policy attention. And that is my intention here.
Too often analysts, including myself, will look at covering a complex array of factors in any historical event - and the re-election of President Trump is such a moment - and under-emphasise the big lesson. This goes beyond inflation though the experience of inflation was certainly a huge weight on the re-election of a Democratic President. It is this and the wider experience of the economy at a household level that matters.
Quite simply, my conclusion is that despite a massive strategic intervention in the economy, to invest in and provide regulatory support to green energy, manufacturing, infrastructure, and strategic industries, this was not felt sufficiently at the household level. Whilst the prescriptions around moral framing, narratives and political organising somewhat miss the mark, the “death of deliverism” critique of the Biden administration, whereby political credit fails to follow economically sound interventions, is the correct one. That means concentrating on the lives of those in the everyday economy.
(It should be said that it may have simply been impossible for the Biden administration to do anything about this as a result of a hostile Congress, eg one that would not extend Child Tax Credits, and global events. I have sympathy with this. But the lessons going forward for UK policy are nonetheless instructive).
Prices, Pay and Prospects
The challenge is not one of narratives, framing and organising - they do matter but they are second order. It is about the fundamental experience, at a household level, of the economy. These experiences are locked in on the price you pay for goods and services, your take home pay over time, and the prospect that things can get economically better in the future. Prospects are a feeling that you can go up in the world and your family can too and you can improve your life, from the house you live in to the quality of your neighbourhood, town and city including the standard of the local services you receive.
In prioritising the high growth economy of strategic industries and infrastructure investment, and growth has been healthy over the past four years, the Biden administration assumed that the politics would follow the policy. The reality when it comes to economic development, is that the two have to march in tandem, feeding off one another. And given that so much of the workforce in distribution, construction, retail, hospitality, manufacturing, farming and property services sits outside of the high growth sectors, albeit dependent upon them, benefits of growth diffuse in ways often unrecognised by households. Their prism on politics is their direct experiences - prices, pay and prospects.
As outlined in the previous pieces in the “three economies” series, this does not mean for a moment that industrial strategy should not be a priority. The argument instead is that the UK’s new economic paradigm must approach the “growth”, “everyday” and “care” economies independently, through the lens of sectors and places, but also symbiotically, ensuring that the mutual dependencies are understood and explicitly flow into local, regional and national policy. Nonetheless, statecraft is ultimately about both politics and policy. Tuesday’s US election is a stark reminder of that. The lesson is that the everyday economy, and the experience of it, needs more explicit policy expression. It is where people spend their cash and many receive their pay and provides prospects for future advancement.
Everyday, care and growth economies in tandem
The “everyday” economy is a transaction economy, where things get built, services are provided, the highest number of people are hired and sometimes fired, goods and services change hands. The “care” economy is where our fundamental non economic needs are met, whether through health, care, education, culture, or community. And the “growth” economy is where technology, high-level skills, innovation are brought together to create new levels of productivity, driving economic development. They matter to one another.
Where people are cared for they are healthier, more able to balance work and life, and have a greater sense of personal security which enhances their working lives. A strong care economy means stronger everyday and growth economies. When a strong care economy is in place, and this is why the Government is right to consider the relationship between health, employment support and skills, the everyday and growth economies are able to function more effectively. People, their well-being as well as their capabilities, matter for a strong economy all round.
When people are treated better in the growth and everyday economies, where there is adequate income and healthy working lives, the burdens on the care economy are reduced. We are healthier and happier, not least when it comes to mental and physical health, and that reduces stresses on the care economy, not least the NHS.
The growth economy for its part creates new sources of value through innovative application of knowledge, science and technology. This has spillover effects for the everyday and care economies. The innovations themselves have the potential to create new business models in the everyday economy and improve the quality of goods and services on offer, including making a consumer surplus available for us to enjoy goods of a greater quality for every pound we spend.
Innovation makes new medicines and other technologies available to the care economy. Higher productivity increases wages and those wages are spent in the everyday economy, creating demand for goods and services (sometimes erroneously referred to as Baumol’s cost disease - it’s actually an important mechanism for spreading economic benefit more widely).
Which brings us to the Everyday economy. If the growth economy is the primary driver of economic innovation and the care economy is the primary driver of social innovation then the everyday economy is fundamental to spreading those innovations. The vast majority of our economic interactions, as workers, as consumers, as business owners, are mediated through the Everyday economy. Ultimately, it enables the other two economies as much as vice versa and spreads innovation and opportunity far more widely.
Quite simply, the growth and care economies couldn’t function without it, and nor could our lives. Whilst this may seem like a statement of the obvious, it tends to get blurred in the national conversation. Part of it is that the strong voices in the growth economy articulate the case for wider ends such as innovation and productivity as do those in the care economy for health and child support and so on. Those in the everyday economy tend to lobby more directly for tax and regulatory advantages from a business-centric point of view. It is also because we take this fundamental aspect of the modern economy for granted. That’s why the Chancellor’s speeches on the Everyday economy and “securonomics” were so important. It’s also what the Biden administration may have under-scored (and he did actually give a speech on the care economy directly which I realised subsequently to starting this series).
Everyday success
For all these reasons, the political as well as the economic, any reformist Government will need to have an explicit strategy for the everyday economy. And it is one that will need to focus on prices, pay and prospects. And what is the thing that unifies all these elements? They are about the outcomes for people. It is about people’s lives in the everyday economy rather than looking at it as a series of business interests. Sometimes that will require more rather than less regulation and sometimes the reverse. Again, the big lesson from the US election is that politics and policy have to come together. What could some of the approaches look like? Here’s seven:
Each of the sectors in the everyday economy could have its own plan but these would be different in form to the eight growth sector plans announced as part of the draft Industrial Strategy. Their purpose would be to consider prices, pay and prospects as well as growth. Therefore, they would be people first rather than business centred alone.
Place is a critical dimension of the Everyday economy. Therefore, each of the planned local growth plans should develop approaches to support people through the everyday economy. These policies could range from specific priority local skills interventions to linking high quality work with local planning and development policies. Government should widen the range of such policy tools available to local areas. There is little point in forthcoming local growth plans simply being mini-me versions of the Industrial Strategy.
Apply a stricter price, pay and prospects lens to sectoral regulation. For example, Ofcom has intervened to prevent scandalous increases in telecoms prices due to the previous regulation allowing increases of RPI plus 3.9%. Competitive markets, consumer rights and price transparency are absolutely part of the mix here. Want to know where there’s lots of low-hanging fruit? Just think about the process you go through when renewing insurance. Moreover, there are other public interventions that can save people cash such as support for house energy efficiency retrofitting. This doesn’t have to be a grant necessarily, it could just be underwriting loans that can be paid back via savings on energy bills.
Housing is such an important element of a functioning Everyday economy. New fiscal rules that balance off assets against public debt liabilities allow for more ambitious investment in social and council housing. This firstly offers more affordable rents (and potentially reduces housing benefit outlays) and takes some pressure off the private rented market enabling lower rents. Rent controls are a blunt tool and may have unintended negative consequences such as reduced supply but there may be smart ways of helping manage in-contract rent increases short of that.
There are lots of potential productivity wins across the Everyday economy allowing wage increases over time. The Employment Rights Bill is actually an economic as much as social intervention that allows for shifting people towards better employers - they are the firms that can successfully manage a workforce with better rights. There are a whole raft of policies that can support better employment and tilt the economic balance towards better employers from non-financial reporting of working practices to stricter procurement rules on management practices and worker well-being.
Catapult centres to encourage the diffusion of innovation and new techniques could be established in some everyday economy sectors (eg construction). This would more explicitly link high quality research with regional innovation, improving high-level technical and management skills and technology adoption. Better adoption of technology and application of higher-level skills enable stronger business performance, improving prospects and pay.
The Singaporean Government has chosen to explicitly support mid-career skills and more widely their strategic approach saw a 50% increase in adult skills participation in a decade. The skills and growth levy should support whole working-life skills. Employers should be expected to invest on a top-runner basis, ie the best at investing in their workers in any sector should become the benchmark for the rest via transparency, policy and regulation.
All of the above support not just a better everyday Economy but help people in their lives in a myriad of ways. Sometimes the policies will support businesses, sometimes challenge them and this is healthy. There is a wider set of challenges too- political trade-offs. These are pronounced when it comes to both health and environmental policies because they both involve behaviour change.
There is little point pretending that living healthier and less environmentally costly lives do not involve costs. Governments will have to think through very carefully how to avoid these changes becoming trade-off situations. The obvious examples are persuading people to shift to electric vehicles, or onto public or active travel modes of transport and to fly less frequently, to adopt healthier lifestyles, or to shift to electric forms of heating over gas. You can see this live reality in Cabinet discussions over whether to signal openness to a third runway at Heathrow.
The realpolitik is when these trade-offs reach a flashpoint, such as when considering fuel duty increases, the non-growth objective loses out which overtime is deeply problematic but makes short-term sense. To put in another way, when the politics goes up against the policy the latter loses. And, indeed, when the political price is so high as to lose public support that is inevitable- your policy loses anyway if you are not in power.
It is vital that these trade-offs are identified early and addressed up-front and designed out wherever possible. A good example of this is the sugar levy which, while provoking “shrinkflation” (less chocolate for your cash), has been broadly accepted as well as having positive impacts. It is better to work through trade-offs ahead rather than pretend everything is win-win. And, sometimes, it will simply involve giving people some cash to, say, but an electric vehicle.
Ultimately, and this is where framing and narrative do come in, a story of tilting the everyday economy towards households will need to hang all these initiatives off. Beyond “fixing the foundations”, this is about seeing the difference today.
The politics of the “three economies”
Arguably, the last Government was defeated because its story wasn’t strong enough in each of “growth”, “everyday” and “care”. People couldn’t see the innovative industries that the last Chancellor wanted them to. The experience of cost of living made their everyday reality feel impaired and insecure. NHS waiting lists meant they lost faith that they and their families would receive the care they needed. It’s not just progressive Governments who lose because of the three economies, it is conservative ones too- as John Burn-Murdoch highlights in the FT today.
The big lesson of the US election is that even if you have a good story to tell on growth you will struggle to win unless you have a good story on the everyday economy too. Ultimately, this means, as I’ve highlighted in previous instalments, that the new economic paradigm will need to cover growth, everyday and care economies and do so symbiotically and in tandem, at every level of geography.
A lot of analysis of the US election has focused on campaign strategy, on the politics of identity (including of the candidate), on resignation decisions, on cultural issues and antagonism, or on positioning on the left-right political spectrum. Each of these factors will have explanatory power but it is the economic fundamentals that really come through in as much as they held back support for Harris as much as generated support for Trump. A new economic paradigm needs a strong politics - without which there will be no sort of paradigm at all. And that politics will ultimately be the felt experience of the everyday economy.
And was this a different final instalment than I had planned given the result? In terms of the fundamental model of the “three economies”, no. In terms of the stronger emphasis on households in the Everyday economy, and the tough politics therein? You bet.
The previous instalments in this series can be read below:
Looks like you should put all this in a book
It’s clear that the vote was about the economy as it should be in the whole of the west as we are too consumed with who we are rather than how we are doing?