Stefan Stern: If Poundland's expanding, we must be in trouble

The 'squeezed middle' (and beyond) is under intense and growing financial pressure

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First Tesco, then Poundland. That is not a "note to self" about doing the shopping. In fact, it describes the interesting career move made by Andrew Higginson, the former finance director at Tesco, who was appointed chairman of the bargain retailer last month. Poundland does not have a premium "Finest" brand. It is clear which end of the market the business inhabits. The clue is in the name.

If Mr Higginson is going to bring his "blue-chip" expertise on pricing points and value for money to the low-price sector, his is not a unique example. In an interview on Monday, the European boss of the food and detergents giant Unilever, Jan Zijderveld, declared ominously: "Poverty is returning to Europe."

Mr Zijderveld explained that his company was now selling goods in smaller packet sizes, an approach the global business first developed in India and Africa. Greek shoppers can now get mashed potato and mayonnaise in reduced (and cheaper) quantities, while packets of Surf washing powder are now on sale in Spain containing enough for five washes only. The average shopper in Spain might spend as little as 17 euros (£14) per trip, Mr Zijderveld explained, so he could hardly expect people to spend half of that amount on their washing. "In Indonesia, we sell single-use sachets of shampoo for two or three cents each and still make money," he told FT Deutschland. "We know how to do that, but forgot about it in Europe in the years before the crisis."

Business gurus have a name for this sort of thing. They call it "reverse innovation", and there is quite a lot of it about. In recent years, the US industrial group GE has brought back new ideas developed in emerging markets and exploited them commercially in the old West. In India, GE introduced a lightweight electrocardiogram device that it could sell for about a tenth of the price of the original US-developed model. In China, the company built a low-cost portable ultrasound machine. In both cases, necessity was the mother of innovation: the local markets could not afford to pay First World prices. But GE has also been able to sell these new lightweight products back in their "home" market.

Convinced free-marketers might offer an optimistic interpretation of all these developments. Capitalism is creative, they might say, and the market mechanism will help you find a way to do business. Even in tough times, you can price your way into a difficult market. And the five-wash carton of Surf is the living proof.

But a less sunny conclusion can also be drawn. It is that in a flat and depressed economy not enough people have enough money to spend on the things that they need. Wages are stagnating while prices – not least for food, housing, energy and clothing– continue to rise. Poverty is returning to Europe, and guess which British success story is planning on expanding there? That's right: Poundland.

This is "efficiency" gone mad. A growing global population apparently demands goods and materials that the planet cannot provide and that most people cannot afford. The logic of "late capitalism", as it is sometimes called, leads inevitably to this state of affairs, the critics say. And thus the analysis of Karl Marx is vindicated, and capitalism collapses under the weight of its internal contradictions.

Are we even pursuing the right economic model in the first place? New research from the ESRC-funded Centre for Competitive Advantage in the Global Economy (CAGE) suggests that increases in GDP and life satisfaction are not directly linked. Countries where GDP per head is in the $26,000 to $30,000 range seem to have found the "optimal economic level for life satisfaction" – what the CAGE researchers call the "bliss point". Their analysis did show a link between income and life satisfaction in poorer countries: as GDP rose so did life satisfaction. However, that increase slowed down after GDP per head reached $10,000, and showed "a tendency to decline with [rising] GDP for the richest countries", according to their research.

However you measure it, there seems little doubt that the so-called "squeezed middle" (and beyond) is under intense and growing financial pressure. The Resolution Foundation's Commission on Living Standards, which will be reporting soon, seems likely to confirm the severe difficulties experienced by those in this country on low to middle incomes – 10 million working-age adults on annual household incomes of between £12,000 and £30,000 per child-free couple. This has been called an "escalator down economy" by the writer Yvonne Roberts, downward mobility that leads straight to the discount stores, and which can be made dramatically worse by a single unwanted episode – a broken-down car or faulty boiler.

As conference season approaches, the pressure will be on all party leaders to show they understand the big squeeze on living standards revealed by a growing body of evidence. Ed Miliband was first to come forward, last year, with a critical analysis of the way our economy works, or doesn't, even if his critique may have been couched in too rarefied language for some and was offered up too soon for others. But when business leaders themselves declare that poverty is back and that consumers are struggling under its impact, something is clearly up. You can see why people talk about "late capitalism". And how late it is, how late.

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