Labour Isn't Working

From public order to housebuilding, the new government is falling short

Towering columns

At UnHerd, Aris Roussinos looks at how the British state’s failure to deal with ethnicity prepared the ground for the ongoing riots.

In practice, however, the British state has quietly adopted a revived version of assimilationism. Over the past two decades, a capacious version of Britishness has been constructed around little more than superficial national symbolism and the desire to avoid ethnic conflict, euphemised as “British values”. Interestingly, Blair himself, who now rejects multiculturalism, has recently become an advocate of Lee Kuan Yew, in whose political philosophy Singapore’s ethnic diversity is, rather than a strength, an undesirable hindrance derived from well-meaning British colonial intentions.

But latent authoritarianism aside, Starmer is no Lee Kuan Yew. His faltering attempt to steer the discourse following the Southport attack towards tackling “knife crime” — itself a British state euphemism — highlights the state’s ideological inability to address ethnic tensions frankly, and so manage them effectively. If it were happening in another country, British journalists and politicians would discuss such dynamics matter-of-factly. This is, after all, simply the nature of human societies. Indeed, it is one of the primary reasons refugees flee their countries for Britain in the first place.

Yet when they occur in our own country, such dynamics are too dangerous to even name. Instead, ethnic groups are euphemistically termed “communities”, and the state-managed avoidance of ethnic conflict is termed “community relations”. When Balkan Roma rioted in Leeds recently, it was as an ethnic group responding to what it saw as the British state’s interference in its lives: the British state, in return, addressed its response to the nebulous “Harehills community”. When Hindus and Muslims engaged in violent intercommunal clashes in Leicester two years ago, it was as rival ethnoreligious groups, and was again responded to by the British state as an issue to be dealt with by “community leaders” — the state euphemism for its chosen intermediaries, in a form of indirect rule carried over from colonial governance. But when the rioting is carried out by ethnic British participants, as is now the case, the limitations of this strategy reveal itself: the perception of an ethnic, rather than civic British or English, identity is actively guarded against as state policy, just as is the emergence of ethnic British “community leaders”.

In The Telegraph, Robert Tombs believes our present disorder is partly the result of us rejecting Victorian moral and cultural restraint.

During the Victorian period, there was a powerful consensus that a violent and disorderly society had to be tamed. Politicians, churches, charities, trade unions, schools, the police and ordinary people in their neighbourhoods co-operated. There remained a “rough” element, but as crime figures show, respectability eventually became the norm. There was a price to be paid: conformity, deference, sometimes harsh treatment of the non-conformist, ultimately the gallows. 

In the 1960s, this restraint was deliberately thrown off. The Labour home secretary Roy Jenkins instituted “a more civilised, more free and less hidebound society”. That is what we now have throughout the West, and it too has its benefits as well as its costs. What seemed a civilised choice to Jenkins changed its nature with the breakdown of the old industrial system with its relatively orderly and patriarchal society. Family stability collapsed. Long-term and inter-generational unemployment created a new “underclass” – the late Victorian term was rediscovered. Society was not merely “permissive”, it was broken…

…Yet for a diverse and individualistic society to function, more commitment is required from its citizens, not less. The Victorian age had many ways of making people toe the line. As one Russian asylum seeker put it, “your neighbour, your butcher, your tailor, family, club, parish keep you under supervision and perform the duties of a policeman”. Without such sanctions, people need to accept restraints willingly, and they need to learn to do so. Community, family and school are essential. Southport still seems to preserve willing community solidarity. There are many places in Britain of which this can be said. 

On his Substack, Neil O’Brien analyses new HMRC data on employment by nationality to demonstrate how selectivity shapes migrant earnings.

For India and Nigeria, the two largest growth groups, the average earnings of Indian and Nigerian nationals relative to UK nationals has sharply declined since the new and less selective system was introduced in 2021. And these numbers are comparing non-UK nationals to an UK average which includes many teenagers and pensioners, who have much lower earnings.

If we look at the earnings of people of the same age the effect is even more striking: in fact, we see a cash decline in the median earnings of Indian and Nigerian nationals aged 22 to 40 - meaning a larger decline in real terms. A less selective approach has massively dragged down the average, from young working age people from India and Nigeria earning 15 and 10% more than UK nationals of the same age before the pandemic, to earning less now…Given that a large proportion of the higher-earning Indian and Nigerian nationals who were here before the new system was introduced will still be here⁵, this implies that the new arrivals since the new system was introduced have significantly lower earnings, and are dragging the average down. To have moved the average from above to below the UK median the wages of the new arrivals must be below the new averages for those groups⁶.

This is not to say that they are bad people, or doing a bad thing: indeed by definition all of the people in this data are working. But as I have argued before, migration has fixed costs for existing residents in terms of diluting our stock of capital, infrastructure and housing: stocks of capital which can only grow so fast, and have built up over long periods. For migration to benefit existing residents economically, we would ideally see new migrants being mainly very high skill and high earning. But the new system seems to be taking us away from that, with newer migrants among the biggest growth groups earning relatively less than previous migrants from the same places.

At The Spectator, Rupert Darwall argues that Labour does not have the economic vision or reforming zeal needed to resolve our economic challenges.

The Chancellor’s decision to cancel badly needed road schemes provides further evidence that, unlike Gordon Brown, Reeves came into government bereft of any fresh ideas on how to improve economic performance. These schemes are crying out for private financing remunerated by road tolls, as in the case of the Silvertown tunnel Transport for London is developing in east London, which will charge drivers to pass through it. A radical Chancellor would have seized the opportunity to find ways to finance and develop public infrastructure privately. 

A forward-looking Chancellor would also know that net zero opens up a genuine, rather than contrived, hole in the public finances. In its July 2021 fiscal risks report, the Office for Budget Responsibility estimated that net zero will lead to a reduction in tax revenues equivalent to 1.1 per cent of GDP by 2050-51. To avoid rises in non-road user taxation, fuel duties will need to be supplemented and eventually replaced by per mile road charging. Tolling to finance new and improved roads would demonstrate the benefits of this approach and avoid public sector infrastructure fiascos such as HS2.

The shock of the Blair revolution was more than presentational. Blair and Brown came into office armed with the policy work they’d undertaken in opposition. On the central issue of the economy, the defeated Tories were left with nowhere to go. It precipitated the party’s collective nervous breakdown and the Conservatives entered a prolonged period of self-administered modernisation therapy. By contrast, Rachel Reeves’s ploy of blaming her predecessor for the allegedly undisclosed state of the public finances has acted like electro-convulsive therapy for today’s Tories. They proceeded to do what they weren’t meant to. They picked themselves up from the floor and started to fight back.

At City A.M., Josh Coupland criticises Labour’s algorithm for the shifting of housing targets away from the places where new development is most needed.

Whilst it’s good that we encourage house building across the country, and the new rules will push up targets in the South East outside of London where homes are very much needed, it makes little sense to have a formula that by and large prioritises housing in areas where demand for new builds is comparatively low. To take a quick look at the new housing targets for major cities – London’s target has been downgraded by 20,000, Coventry’s has been halved and Birmingham’s brought down by over 2000 homes. Yet London is where the homes are needed the most. So the question remains, why has this happened? 

The answer lies in the formula used to create the targets. Instead of looking at the number of households, the formula will now use a measurement of housing stock. A move away from household growth as a measure is a good thing, not least because it completely distorts the picture of housing demand as it doesn’t account for things like the staggering rise in adults living with their parents compared to previous generations – often because they cannot afford to buy their own home and start their own families. 

But a move to using housing stock also completely ignores the reality that many towns and cities in post-industrial Britain have shrunk, and the urban populations have moved, leaving behind empty or under-occupied houses. Despite these areas having a much higher ratio of homes to people compared to much denser parts of the country, they will still be required to build more, even though they’re quite evidently not needed.

At UnHerd, Jeff Bloodworth examines how the Democratic Party has neglected working-class voters in the Rust Belt.

To understand why, start at the top. A majority of House Democrats graduated from a top-100 college. Just one measly Democratic member of Congress has cited ever working a blue-collar or service job. Since 2004, a quarter of all Democratic presidential campaign staffers attended the same 15 elite universities. What this means is that Democrats, the self-styled “Party of the People”, don’t have folks with working-class backgrounds on their staff, in their offices, and now on their voter rolls. But the problem runs deeper than the class disparity of political elites.

Dr Cory Haala, a specialist in the political history of the Rust Belt Midwest, thinks the Democrats’ working-class woes stem from the party’s “singular focus on winning the presidency”. With the White House always in mind, he explained, the Democrats aimed policy at upscale suburban voters in key swing states. As a result, what started with Rust Belt working-class whites morphed into a problem with the non-white working-class…

…Posner agrees with Haala on the damage wrought by White House-centric politics. An obsession with the White House means Democrats ignore political offices that address basic problems. As she told me: “We don’t prioritise city councils or mayor races that have the jurisdiction. We prioritise the goddamn DCCC [Democratic Congressional Campaign Committee]. Congress is doing shit. Why are we pouring millions of dollars into races that don’t do governance? The things that solve people’s problems are at the local level.”

Wonky thinking

At Onward, Phoebe Arslanagić-Little has published A New Deal for Parents. This report sets outs a number of policies to reform tax, benefits, and employment rights for working mums and dads. Parents play a vital role in promoting personal happiness and contributing towards the future of British society. But the costs of raising children has become too high. The report argues that the tax system should reflect these facts by end the means-testing of Child Benefit by abolishing the two-child limit and the High Income Child Benefit Charge.

The UK has a ‘birth gap’, meaning UK women are having smaller families than they want. While women on average say they want 2.35 children, the UK’s actual birth rate is only 1.49 and we have a long-running trend of falling fertility, as can be seen in Figure 1 below.1 Many parents and prospective parents cite material factors — including financial instability, difficulty accessing housing, and childcare costs — as preventing them from starting or growing their families.

It is urgent to close the birth gap not only because of the thousands of people who are being locked out of family life, but because children are important, in their own right, socially, and economically. As life spans increase and the fertility rate declines, our working-age population is shrinking. The demand on the public purse is rising as its income through tax revenue diminishes. The effects of an ageing society threaten our prosperity and standard of living, dragging down productivity and economic growth, while reducing the functioning of public services and curtailing our ability to care for an older population.

Averting the negative consequences of an ageing society will mean increasing the size of our working-age population. Some suggest higher immigration is the solution. But modelling has demonstrated that the amount of immigration necessary to offset or even largely ameliorate the effects of an ageing population is extremely large.3 Research published in 2023 found that maintaining a ‘reasonable’ ratio of working-age people to those aged over 65 into the middle of this century – still lower than the ratio we have today – through immigration would require 37% of the UK population to be foreignborn by 2083, with annual net immigration starting at 500,000 and rising over time. Currently, just under 15% of the UK population is foreign-born.

Not only does democratic consent for permanent immigration of this level not exist,4 but with many other nations experiencing falling fertility rates and looking to bolster their working-age populations, the UK may struggle to attract such a level of immigration in the medium to long term.

The collective challenge of the ageing society means making it easier for everyone to have and support the children they want when they want is in all our interests. In tangibly making life better for families and consistently communicating that we appreciate and recognise the efforts of parents, we can move the dial and see more people reach their desired family size and meet the UK’s demographic challenge.

At the Federal Reserve Bank of St. Louis blog, Mick Dueholm, Aakash Kalyani, and Serdar Ozkan argue that tight labour markets can spur productivity gains in the long-term. They look at the Covid-19 recession in the United States which led to 2 job vacancies per unemployed worker in early 2022. But this then led to companies increasing investment and automation.

To determine whether firms in our dataset actually increase their investment because of labor issues, we employed an econometric analysis that studies firm-level investment and exploits differences in labor issues faced by a firm at different points in time. We found that a 1-unit increase in a firm’s labor issues leads to a 28 basis point increase in its investment. To put this investment effect into perspective, our estimate implies that since 2021, the increase in labor issues (due to, for example, tighter labor markets) has spurred approximately an additional $55 billion in investment in the U.S. economy.

This is a significant amount, and one that’s similar in size to funding appropriated through the 2022 CHIPS and Science Act for boosting domestic semiconductor research and manufacturing. We also found that the increase in investment has been driven by firms in industries that heavily employ routine manual tasks, such as assembly line work in the manufacturing industry or packaging and labeling in the warehousing sector. Industries that don’t heavily employ routine manual tasks tend not to experience a significant increase in investment resulting from labor issues…

…Discussions of labor issues and automation often coincide in earnings calls. For example, in a first quarter 2024 earnings call, an executive at an automotive technology company said: “Our focus this year is on accelerating automation to address wage inflation and improve efficiencies in our plants.” This excerpt clearly demonstrates the phenomenon of firms turning to automation as a way to reduce labor costs.

To investigate this relationship, we counted instances in which automation was mentioned in earnings calls.⁴ We found that chatter about labor issues and mentions of automation were significantly associated. More specifically, firms that discuss labor issues are 45% more likely to talk about automation in earnings calls compared with the average firm in our sample. As with investment, labor issues and mentions of automation are more likely to coincide in industries with a higher share of routine manual tasks, which are easier to automate. This supports our initial conjecture that tight labor markets lead firms to adopt automation technologies…

…If firms increasingly turn to automation in response to labor shortages, we should expect to see improvements in labor productivity. We measured labor productivity for each firm in our dataset as revenue per worker and adjusted for inflation. We then conducted an econometric analysis similar to the ones we performed for investment and automation. Firms within industries that heavily employ routine manual tasks—about one-sixth of our sample—and that mention labor issues in earnings calls see an increase in labor productivity. More specifically, we found that a 1-unit increase in labor issues is associated with an 8.9 basis point increase in productivity growth after four quarters. Notably, the effect of a tight labor market on productivity is negative for firms relying on nonroutine tasks. Since these firms cannot easily substitute labor with capital, their productivity growth is more hampered by the labor issues they face.

Book of the week

This week we recommend Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu & James A. Robinson. Looking at historical evidence from ancient Rome to present day China, the authors make the case that nations can only succeed and prosper when they have strong political and economic institutions. Indeed, this was a vital ingredient in British success during the eighteenth and nineteenth centuries.

Conflict over institutions and the distribution of resources has been pervasive throughout history. We saw, for example, how political conflict shaped the evolution of Ancient Rome and Venice, where it was ultimately resolved in favor of the elites, who were able to increase their hold on power. English history is also full of conflict between the monarchy and its subjects, between different factions fighting for power, and between elites and citizens. The outcome, though, has not always been to strengthen the power of those who held it…

…Perhaps most critically, the emergence and empowerment of diverse interests - ranging from the gentry, a class of commercial farmers that had emerged in the Tudor period, to different types of manufacturers to Atlantic traders - meant that the coalition against Stuart absolutism was not only strong but also broad. This coalition was strengthened even more by the formation of the Whig Party in the 1670s, which provided an organization to further its interests. Its empowerment was what underpinned pluralism following the Glorious Revolution.

If all those fighting against the Stuarts had the same interests and the same background, the overthrow of the Stuart monarchy would have been much more likely to be a replay of the House of Lancaster versus the House of York, pitting one group against another narrow set of interests, and ultimately replacing and re-creating the same or a different form of extractive institutions. A broad coalition meant that there would be greater demands for the creation of pluralist political institutions. Without some sort of pluralism, there would be a danger that one of the diverse interests would usurp power at the expense of the rest. The fact that Parliament after 1688 represented such a broad coalition was a crucial factor in making members of Parliament listen to petitions, even when they came from people outside of Parliament and even from those without a vote. This was a crucial factor in preventing attempts by one group to create a monopoly at the expense of the rest, as wool interests tried to do before the Manchester Act.

The Glorious Revolution was a momentous event precisely because it was led by an emboldened broad coalition and further empowered this coalition, which managed to forge a constitutional regime with constraints on the power of both the executive and, equally crucially, any one of its members. It was, for example, these constraints that prevented the wool manufacturers from being able to crush the potential competition from the cotton and fustian manufacturers. Thus this broad coalition was essential in the lead-up to a strong Parliament after 1688, but it also meant that there were checks within Parliament against any single group becoming too powerful and abusing its power. It was the crucial factor in the emergence of pluralistic political institutions. The empowerment of such a broad coalition also played an important role in the persistence and strengthening of these inclusive economic and political institutions…

…Still none of this made a truly pluralistic regime inevitable, and its emergence was in part a consequence of the contingent path of history. A coalition that was not too different was able to emerge victorious from the English Civil War against the Stuarts, but this only led to Oliver Cromwell’s dictatorship. The strength of this coalition was also no guarantee that absolutism would be defeated. James II could have defeated William of Orange. The path of major institutional change was, as usual, no less contingent than the outcome of other political conflicts. This was so even if the specific path of institutional drift that created the broad coalition opposed to absolutism and the critical juncture of Atlantic trading opportunities stacked the cards against the Stuarts. In this instance, therefore, contingency and a broad coalition were deciding factors underpinning the emergence of pluralism and inclusive institutions.

Quick links

A 19-year-old Isis supporter confessed he wanted to “kill as many people as possible” at a Taylor Swift concert in Austria.

Polling shows that 49% of people believe Sir Kier Starmer is handling the riots badly.

Majority of voters, across all parties, believe “immigration policy in recent years” bears some responsibility for the riots, including 56% of Liberal Democrat voters.

Killer of teenager, Gordon Gault, has been released five months after sentencing due to the early release of prisoners.

Data shows that there were 758,000 foreign students in the UK last year.

The number of monthly applications for health and care visas has fallen by 82%.

Operation Scatter will place illegal migrants in homes of multiple occupancy, family properties, former care homes, and student accommodation, instead of hotels.

The government is considering whether to adopt a formal definition of Islamophobia.

A 16-year-old boy has been charged with attempted murder after the violent clash in Southend.

The University of York advertised a £3.5 million contract to expand its recruitment operations in China, India, and other parts of South East Asia.

Samsung produces 41% of the world’s DRAM chips and 33% of NAND memory chips.

Belarusian engineers built nuclear submarine software for the UK.

Labour ministers scrapped the European Scrutiny Committee with a one-line motion.

The post-war housing boom could not have happened with massive state capacity.

Shipbuilder Harland & Wolff sacked its CEO and axed “non-core business lines”, including the fast ferry service between Penzance and the Isles of Scilly.

The prime minister of Bangladesh, Sheikh Hasina, has fled the country following weeks of anti-government protests.