Speaking at a Tory rally in Bedford in 1957, Prime Minister Harold Macmillan very confidently announced that ‘most of our people have never had it so good’. He went on to say, ‘go around the country, go to the industrial towns, go to the farms and you will see a state of prosperity such as we have never had in my lifetime – nor indeed in the history of this country’. The rate of unemployment in 1957 was under two per cent. Today, the unemployment rate stands at 7.8 per cent with many in the work force considered to be in a state of ‘underemployment’. Harold Macmillan’s words seem to be of a very different era to our own. The above graph shows what has happened between now and then. The 1950s and 1960s were the age of ‘full employment’, during which unemployment never exceeded three per cent. Ever since the post-war Keynesian consensus broke down from the mid-1970s onwards, things have never quite been the same. We have grown used to much higher rates of unemployment. The rise of large-scale benefit dependency, so emotive in today’s politics, started from the late 1970s onwards.
Why did this change happen? There is no easy answer and multiple explanations. Here is a (by no means extensive) list:
Rising productivity. Many industries can produce more stuff with fewer people than in the 1950s and 1960s.
Lack of demand. Neo-Keynesians such as Civitas author John Mills argue the problem has been that the economy has not been operating at full capacity since the 1980s as successive governments have paid too much attention to other economic factors, like inflation.
Increasing corporate short-termism. The rise of the mantra of shareholder value maximisation has encouraged the corporate sector to prioritise short-term, low-risk investments that maximise financial return over more productive and employment-generating, but less profitable, investments.
We seem to have internalised this new norm and lowered our expectations accordingly. During the boom years of the 2000s when Britain’s economic performance was seen to be very strong, unemployment never actually fell below a trend line of five per cent. When we talk about a return to growth now, it reflects at most an aspiration to return to these levels of unemployment, albeit on a more sustainable footing. However, there needs to be much more discussion of why we can’t return to the full employment levels of the 1950s and 1960s. This is not to claim that we can recreate this for certain. We may not be able to. But a debate needs to be had. Labour’s recent pledge to make full employment a policy goal is a start but we need to go much further.
