Drivers queue for fuel at a petrol station in London. Photo / AP
Wages in some industries are rising because employers can't find enough workers. That's not a path to long-term growth, analysts say.
In a country bedevilled by acute shortages of goods and workers, Prime Minister Boris Johnson is portraying the chaos as a source of national revival.
Gas stations in Britain have recently had no gas, and grocery items are sparse, in part because of difficulties in delivering such goods. That is in part due to Britain's abandonment of the European Union — a reordering championed eagerly by Johnson. Brexit has dissuaded Eastern European immigrants from coming to work as truck drivers, while new customs procedures at ports have snarled trade.
Yet far from bemoaning such troubles, Johnson is celebrating them as the tough parts of a critically needed economic restoration. In his telling, Brexit has delivered a benefit that Britain has lacked for more than a decade: rising wages.
"We are embarking now on a change of direction that has long been overdue," Johnson told a recent gathering of his Conservative Party. "We are not going back to the same old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration."
If that formulation — the folding of upheaval into a narrative of national progress — makes for savvy politics, economists are dubious about the promised happy ending.
Yes, Britain sorely needs to raise wages while reorienting its economy away from low-paid pursuits toward innovative industries that employ highly skilled people at handsome salaries. But that demands vocational programs and other forms of job training along with investments into public infrastructure. Those things cost money. Brexit is limiting the government's finances as it assails the broad economy.
"So far it's just rhetoric," said Bernd Brandl, a professor of management at Durham University in England. "There's no real plan for how this should be realized."
Constructing an economy that is more rewarding for workers also requires a realignment of power between employers and labour — a return to collective bargaining that delivers a commensurate share of economic gains to wage earners. That truck drivers are suddenly in position to command higher pay may be welcome, but it falls short of a meaningful transformation.
"This is a one-time thing that doesn't permanently raise workers' bargaining power," said Adam S. Posen, a former member of the Bank of England's monetary policy committee and now the president of the Peterson Institute of International Economics in Washington. "It doesn't fix any underlying problems."
In the Midlands of England, the prime minister's promises of a bountiful future inspired no hope for Arabella Petts, a 22-year-old recent college graduate.
Intent on forging a career in publishing, she has instead gained experience scrubbing bathrooms. More than a year after graduation, she has yet to secure a steady job, while paying her bills through itinerant gigs as a hotel house cleaner and as a janitor at a local school.
"I needed two part-time jobs to survive," she said. "I really thought I would have a job by now."
Petts' frustration highlights the contrast between the British economy as celebrated by Johnson — an ascendant power liberated from the stultifying bureaucracy of the EU — and the reality of a country contending with confusion and stagnating fortunes.
The shortages of goods and labour are in no way a uniquely British problem. They are in part the result of the pandemic, which has roiled economies around the globe. They also reflect the Great Supply Chain Disruption, which has clogged ports, highways and warehouses from Shanghai to Savannah, Georgia, while forcing businesses to scramble to hire workers.
But the turmoil is especially grave and potentially long-lasting in Britain following the country's decision to remove itself from the EU. Investment and trade have been disrupted by a welter of new procedures at ports, while immigrants have forsaken the country, yielding severe shortages of workers.
Johnson is now spotlighting one popular component of Brexit — new limits on immigration — while casting the resulting labour shortages as a curative for chronically low wages.
In recent years, under governments led by Johnson's Conservative Party, the vast majority of rank-and-file British workers have seen no increase in their pay, in part because of a weakening of union power. This, combined with budget austerity, has produced enduring bitterness in many communities.
"I am pleased to say that after years of stagnation — more than a decade — wages are going up faster than before the pandemic began," Johnson told his party gathering.
Wages are indeed rising in key industries. But the costs of higher pay for a select group is adding to the strains on the overall economy, lifting the cost of food, fuel and other crucial goods for ordinary people while exacerbating difficulties for businesses struggling to recover from the pandemic.
"It's inevitable that we will see price rises," said Richard Walker, managing director of Iceland, a chain of supermarkets, in a recent interview with the BBC.
By the end of next year, Britain's economy is expected to be growing at a pace of 2.2 per cent compared with the last quarter of this year — a slower recovery than in much of Europe, including France, Italy, Spain, Portugal and Ireland, according to the latest forecast from the International Monetary Fund.
"A sustained and complete recovery remains, in our view, far from secure," the Institute for Fiscal Studies, an independent research institution in London, recently warned. "Brexit compounds this challenge: Early evidence points to the beginning of a period of acute structural change within UK trade."
The structural change that Britain needs, say many economists, is to shift in the direction of the economic model that prevails in Nordic countries like Denmark and Finland. There, labour unions huddle with associations of employers representing industries in collective bargaining sessions, with the tacit understanding that workers are entitled to a fair share of the growth.
Because wages are high in Nordic countries, companies tend to avoid competing in industries where success demands relentless cost-cutting, instead focusing on innovative pursuits like technology and health care.
Britain's economy is challenged by a deep-set and conspicuous lack of productivity growth.
Productivity — a critical gauge for economists — is a measure of how much value is produced by an hour of labour, or an injection of investment. Raising productivity is widely viewed as the healthy and sustainable way to produce wage gains.
Over the last two decades, Britain has fallen behind other advanced economies, with productivity expanding 0.4 per cent a year there, compared with about 0.6 per cent a year in Western Europe, according to The Conference Board.
The reasons for this disparity are the subject of debate, but many explanations center on Britain's failure to inculcate needed skills.
By 2030, two-thirds of the British workforce — or more than 20 million workers — are at risk of lacking basic digital skills absent more training, according to a study from McKinsey, the business consultancy.
Diminishing the influx of immigrants is likely to worsen the skills shortage by preventing talented people from entering the country. And the labour shortages — in producing a boost to pay — may relieve political pressure to expand job training.
"You can't suddenly magic the extra skills and productivity by increasing wages," said Diane Coyle, a professor of public policy at the University of Cambridge. "As a short-term fix, it's not going to work."
Increasing wages for some workers amid weak economic growth actually diminishes productivity. It is like reducing the size of the pie while handing bigger slices to a few people at the table: Overall, nourishment does not improve.
In Britain, productivity gains have varied widely by region. Wealthy areas of southeastern England, where finance is a dominant, have pulled away from northern England, where former manufacturing powerhouses have lost factory jobs.
This has proved a decisive shift in British politics and a key factor that produced Brexit. People in hollowed-out former centers of manufacturing used the referendum as a protest vote against the pro-European establishment in London. Labour Party strongholds that have suffered joblessness shifted to the Conservatives, supplying Johnson with the margin that put him in power.
In the run-up to the 2016 referendum that set Brexit in motion, voluminous studies warned that leaving Europe risked lasting economic damage. The 27 remaining members of the European bloc collectively purchased nearly half of Britain's exports — a flow of goods that was sure to be impeded by a border separating the two sides of the English Channel.
Multinational companies that had clustered operations in Britain while serving customers across the continent would place future investments within the European bloc. Finance would be forced to move jobs from London. From agriculture to construction, businesses would suffer labour shortages.
Much of what has played out this year — the beginning of Britain's post-Brexit incarnation — has hewed to these damaging scenarios.
Business investment has stagnated ever since the referendum. As of the end of June, investment was nearly 13 per cent below its lackluster pre-pandemic level.
On Tuesday, before an investment summit in London, Johnson announced commitments of nearly 10 billion pounds (about $19 billion) from international companies into green energy projects in Britain.
At the same time, Brexit has clearly undermined Britain's attractiveness as a landing spot for some multinational companies.
Intel, the giant US computer chip manufacturer, would have previously looked to Britain as a place to invest in new plants. Not anymore.
'Post-Brexit," the company's CEO, Patrick Gelsinger, recently told the BBC, "we're looking at EU countries."
In celebrating higher wages, Johnson is drawing the ire of those who accuse him of disingenuous opportunism — like a man who has sabotaged the dam only to salute the floodwaters as a cure for drought.
"This is clearly a recasting of the negative impact of Brexit," said Mary-Ann Stephenson, director of the Women's Budget Group, an independent research and advocacy group.
This article originally appeared in The New York Times.
Written by: Peter S. Goodman and Eshe Nelson
Photographs by: Andrew Testa
© 2021 THE NEW YORK TIMES
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