A trio of reasons for public ill temper

Just why is the ordinary voter in the street refusing so doggedly to believe in the 'feel-good' factor?; Employers used to offer jobs for life but were unable to deliver them; Politicians compound the lie that public services are somehow 'free'
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The Independent Online
Why are we so unconfident about the future? More important, does it matter that we are?

The absence of a "feel-good" factor has become the theme of our times. Every piece of vaguely disturbing economic news that emerges is seen either as an explanation of this grouchy mood or a justification for it. Earlier this week, there was the publicity associated with a report by Professor Douglas Wood that house prices would fall in real terms for 20 years, and yesterday there was a downward revision of first-quarter GDP figures. But one could take any two or three-day period and find a similar spin on the stories - low housing transactions, a modest fall in car sales, a slowing down in the rate of decline in unemployment. The Gallup survey which asks people whether they think their financial situation will get better or worse in the next 12 months continues to show large negative balances; and when they ask people about the country's economic situation, they say much the same.

This is mostly bunk. The recovery is sustainable and secure, with growth needing to slow down a little from the present level at around 3 per cent. The current account is in modest surplus. Consumer spending is at an all-time high, with retail sales volume up 1.8 per cent year on year. (Contrast that to Germany, where they are down 7 per cent, or Japan, down 0.3 per cent.) Unemployment at 8.3 per cent is too high, but is the same as Germany and well below the European average.

The professionals recognise this, for the stock market has performed well, and in recent months there has been a decent recovery in bond prices. The punters evidently don't, as the polls and local government elections show. Leaving aside the irrationality of voters, there are two oft-cited explanations for this, and I want to add a third.

First is house prices. The game has clearly changed. It has changed from the post-1960s world where each successive boom left real house prices higher than the previous one and inflation stopped there being any fall in money prices each slump. We are little more than five years into the new environment, so it is far too early to have much feel for the trend of future prices, but it would be plausible to expect a pattern much more like house prices in Victorian times.

Then, there was no general price inflation, but the railways had the effect of cutting land prices near cities, and the steamship cut timber costs. This enabled builders to meet the sharply rising demand for new homes from a growing population. The forces will be different now, for the technical advances are detailed improvements in building techniques, and the population is growing more slowly. But given that as people get richer they tend to want more living space, it seems sensible to expect a period of stable real house prices, with additional wealth gradually being used to upgrade the housing stock rather than bidding up the price of existing housing.

This suggests that there will be no price crash, or indeed a generation of falling prices -- my own guess is that most of the fall in real terms has already taken place. It does, however, mean that housing will not be a particularly good investment. Since many people have bought their present homes with the expectation of making a real gain on them, this does mean that a segment of the population will be disappointed. Such disappointment is legitimate grounds for ill temper.

The second reason for concern is the change which has taken place in the job market. It is not so much that job tenure for many people is less secure than it was a generation ago; more that the perception and expectations are radically different. Actual periods in a job have not changed much in nearly 20 years. The median time in present employment in 1993 was 4.9 years; back in 1975 it was 5.8 years. For women, job tenure has actually increased, with the median rising from 3.9 years in 1975 to 4.3 years in 1993; for men, there has been a sharper fall, from 7.9 years to 6.4 years, but that is hardly the dramatic change which people think has happened.

I suspect the real difference is that employment contracts are much more honest now than they used to be. A generation ago, employers offered jobs for life but were in fact unable to deliver them. The result has been that large numbers of people were made redundant in their forties and early fifties without this possibility being made clearwhen they took on their jobs. The present form of contract, which either implicitly or explicitly limits the term of the employment, at least ensures that there is no such misunderstanding. The new employment contract may well be as secure as the old; but, because it is more explicit, people feel less secure.

There is, perhaps, a third reason for greater insecurity, associated with the capacity of the state to deliver services. The assumption of most people a generation ago was that the state could be relied on to provide an adequate and improving level of healthcare, education, pensions and unemployment benefit. Many people no longer feel able to make that assumption. This is not to make any particular political point. Rather it is that many people feel it is unwise to make their personal circumstances dependent on what the state might or might not be able to deliver a generation or more from now.

Anyone in their twenties who intends to rely on a state pension is betting on the decisions of voters and the capacity of government in the years beyond 2030. That is a pretty hairy thing to do.

So people have to try to make their own pension provision, as well as paying taxes to fund existing service. What goes for pensions goes in some measure for healthcare (nursing homes), education (university fees), and unemployment benefit (mortgage support).

Further people do not think of benefits received through the state system as a rise in their standard of living. Thus people are facing an increase in taxation which they perceive as cutting their disposable income. That is quite correct: tax rises are cutting their incomes. What does not comfortably fit into the public perception is that these rises are funding additional services which are being provided by the state.

Politicians are much to blame: by presenting public services as something which they "give" to the public, they compound the lie that public services are somehow free, whereas of course the state is merely running a giant recycling operation.

This is why the present ill temper of voters matters so much. If people in a decent and (with a few reservations) competently run democracy feel that they should not count the services provided by the state as part of their living standards, then they are cutting away at the core values of their society. The European model, with a relatively high proportion of GDP mediated by the state, is particularly vulnerable.

If this present ill temper leads voters to look more to, say, the various East Asian models, where countries with similar living standards to western Europe rely much more on individual and family provision than state provision, that is a rational choice. But we should be clear about the direction our bad temper is leading us. We are not just feeling bad about the recovery. We are feeling bad about the way the income from that recovery is being spent.