David Willetts: Solving our nation’s problems requires a fair deal for the young

3 Dec

Lord Willetts is President of the Resolution Foundation. He is a former Minister for Universities and Science.  

Civil society is a powerful concept covering every form of association which stands between the individual and the state. It is one of the great strengths of modern liberal democracies and distinguishes them from totalitarian states or dictatorships which are hostile to it.

I myself have written about “civic conservatism”, to challenge a critique of free market economics that it was just about atomistic and selfish individuals and left no room for the institutions which are outside the market but not controlled by the state. They are the ones which often make life worthwhile.

Margaret Thatcher was often caricatured (and is again in the new series of The Crown) as just thinking of balance sheets and accountancy when she also wanted to roll back the state to create more space for civil associations.

But the breadth of the concept of civil society produces risks and difficulties too. It can become an amorphous shifting residual: what is left after more powerful forces such as market and state have done their bit. It is like that strand of theology, “the God of the gaps”, in which the divine is thought to be expressed in phenomena which are not yet explained by science.

That opens the question of what kind of relationship civil society has to other forms of social organisation. There is an ideological debate about whether the state should be seen as friend or enemy. Did the creation of the modern welfare state in the first half of the twentieth century lead to the destruction of the friendly societies, or was it partly a response to their increasing weakness in the face of the rise of those twin features of a modern industrial society – unemployment and retirement?

The relationship between civil society and the family is not straightforward either. The instinct to look after one’s own family is natural and noble. But family ties reinforced by inheritance can be bad for social mobility. Extended families can themselves act as a kind of mini-civil society serving their own kith and kin, but are those relationships benign or a kind of clan-based corruption? The rise of civil society in Great Britain was in part the product of small nuclear families and limited government leaving space in which civil society, at least of a certain sort, could thrive.

Close up, civil society proves to be a surprisingly controversial idea. But engaging with tricky issues is better than the alternative, which is to leave it just as a vague appeal to do good. Civil society then becomes a kind of social glue which we imagine we can pour over a diverse and divided society to try to hold it together. Asking for us to be good and co-operate with others is admirable, but on its own may not actually get us very far.

Instead we should start with much more limited and less favourable assumptions about human behaviour. The challenge is to try to construct policies promoting civil society with minimal prior assumptions. Instead of trying to stick us together with benign altruism, it is more like dry-stone walling where the stones are held together not because they want to be, but because of the most basic natural forces and skilled institutional design. The starting assumptions about humans should be as limited as those which lie behind modern economics.

The intellectual resources of game theory and evolutionary biology then help to show a way forward from this apparently unpropitious starting point. One of the classic puzzles in modelling human behaviour is the Prisoner’s Dilemma – two criminals are arrested with strong incentives to betray each other even though they both do best if neither of them betrays. As neither can trust the other not to betray them, they end up both betraying and therefore are both worse off.

The dilemma forces us to think through the circumstances in which humans can co-operate. A key advance was made by Robert Axelrod when he showed that if we think of this dilemma not as a one-off but as an endlessly repeated exercise, then it becomes rational not to betray until you are betrayed. This in turn helps us to understand what institutions do. They provide environments where repeated interactions promote co-operative behaviour. And we are talking here of real institutions which can do much more than the much more invertebrate concept of community.

This raises another set of other problems. Do such patterns of behaviour within institutions reward insiders versus outsiders? Indeed, one of the liveliest issues animating a lot of politics is who are the insiders, and who are the outsiders? Some feeling against immigrants comes from the fear, however unjustified, that they are freeloaders, coming to benefit from a welfare state to which they have not contributed. It is one of the paradoxes of liberalism that it embraces diversity, but that it may also reduce support for a welfare state.

And what if the insiders are the members of our own generation? Think of a local residents’ association committed to supporting the local community. Its volunteers serve as councillors or as school governors, but they are all middle-aged or older owner-occupiers and oppose new housing in their area because they are unaware or uninterested in the younger people desperate to get on the housing ladder.

Why should they care about the younger generation? Well it makes sense to look after the younger generation because as we get older we hope they will look after us. It is not just a one off decision, it will shape what they do to us later. In the wise words of the great American bumper sticker – “be nice to your kids they choose your nursing home.” And as tax payers they might be helping to finance your nursing home as well.

So if we boomers treat them fairly now they may treat us better when the boot is on the other foot. Or as Paul Samuelson put it very well: “giving goods to an older person is figuratively giving goods to yourself when old”. It is these exchanges between generations which are at the heart of society, and also the modern welfare state. It is why services from education (for the young) and health care (for the old) matter so much to us.

At any one moment they may look like transactions with someone else, but they are also exchanges with ourselves at different stages of the life cycle. It is easy to think of these people of different ages as just different – imprinted with different experiences during their formative years and familiar with different technologies. But there is another way of thinking of them: just like us but of a different age. And the more we can connect with them the more we may continue to support these exchanges between different generations which keep society together.

That is particularly true as the country faces up to both the demographic challenge associated with the big baby boomer generation growing old and the need for rebuilding and renewing associated with recovery from the pandemic. Building back better must be above all an investment in the younger generation who have had the greatest economic hit from the epidemic. We owe it to them.

The above is an extract from ‘Civil Society, Unleashed’, an essay collection published by Pro Bono Economics on December 1.

David Willetts: The Government is wrong to propose cutting back on Universal Credit while the tripe lock remains untouched

8 Oct

Lord Willetts is President of the Resolution Foundation. He is a former Minister for Universities and Science.  A second edition of his book The Pinch was published last year.

One of the biggest challenges the Government faces is to offer young people the same kind of opportunities that the Baby Boomers enjoyed when we were young. The pay of young workers is no higher than it was ten or fifteen years ago. And getting started on the housing ladder is much harder – though the welcome announcement in the Prime Minister’s Conference speech is a bold attempt to tackle this.

The virus is having dramatically different effects on different generations. Old people are much more likely to get severely ill. But young people are taking a much worse economic hit. Today, the Resolution Foundation, in partnership with Nuffield Foundation, produces our annual generational audit tracking changes in the balance between the generations.

We show that if we turn from physical health to mental health, the virus is actually having a severe health effect on young people too. The proportion of 18-29-year-olds experiencing poor mental health has increased by 80 per cent during the pandemic

One reason is that they are much worse affected by lockdown. Young people have half the living space of older people and half the chance of access to a garden. They are less likely to have their own access to their own desk space. So the response to the virus has hit their mental health very hard.

We at the Resolution Foundation have shown in successive reports that young people have been increasingly concentrated in a few sectors which depend on human contact – retail, hospitality, and social care. Even before the current crisis, it was bad for their long-term prospects that so many were in those sectors whilst older workers were more likely to be in high pay high technology sectors. But it has now left young people severely exposed to the virus. It must be a high priority to give them better chances of skills and training for other sectors.

But it is not just about young workers. Another group turn out to be badly affected too – workers in their sixties. They may have already been moving to the periphery of the jobs market, perhaps working to boost a meagre pension entitlement. Their incomes have also been hard hit and they too are finding their mental health badly affected. These people often have a lot to offer as well.

The Treasury’s response to the virus has been very well distributed across the generations. The £71.5 billion worth of crisis income support delivered by the Government this year has been shared across generations. Young people have been the biggest beneficiaries of the furlough scheme.

The boost to the Universal Credit has been worth most to families with younger children – workers in their early 30s and late 40s receiving the most support of all. That makes it even more important that the unwinding of these measures is also done fairly, and delivers for the younger generation who are taking the worst economic hit.

The last decade has seen a massive and indefensible shift in the balance of the benefit system. The triple lock for pensioners has ensured that their benefits grow remorselessly. For the first time in recorded British economic history, the disposable income after housing costs of the average pensioner is higher than the average working age family.

The poorest twenty per cent of pensioners are better off than the poorest twenty per cent of families as well. Since 2015, pensioner benefits have on average gone up by £200 a year more than inflation but, for families, it is £200 less than inflation. This is not a fair deal between the generations. It is one reason that the Government temporarily boosted the Universal Credit of families during the crisis.

It is now proposing to reverse this whilst the triple lock remains untouched. That is wrong. The Chancellor is right to remind us that money is limited, and that means we have to be rigorous in setting priorities. Systematically prioritising one age group over the rest for year after year breaks the contract between the generations which holds a society together.

The widening generational gap in incomes is matched by what is happening to our assets. This is, I believe, the most important single change in Britain’s economic and social structure over the past 30 years.

Until the 1980s, our wealth was about three times our national income. But now the value of our assets has shot up to over seven times the value of what we produce. This has changed our country profoundly. It is why it is harder to save to buy an asset out of earnings. It used to take three years to save from average earnings enough to get a deposit for a house, but now it is 21 years. It means inheritance becomes a more important route to wealth.

And as most of the wealth – the houses and the company pensions – are in the hands of the Boomers, it means that the generational gap has got wider. Our report has powerful new evidence of the size of these trends. Someone getting into their thirties in the last decade had 25 per cent less real total wealth than someone reaching the same age a decade earlier. But a Baby Boomer getting into their sixties had 50 per cent more wealth than someone getting to the same age ten years before them.

It was bad enough already before the crisis. We must not let the virus exacerbate these trends still further. We need to help younger people get the skills they need to get by in a rapidly changing economy, including the opportunity to get into both further and higher education. I very much welcome last weeks’ bold proposals to boost access to level 4 and level 5 qualifications, between A level and a full honours degree. I also welcome this week’s proposals to help young people get started on the housing ladder.

But we can do more. We should have more short courses for young people out of work now. We must have a fairer balance in our social security spending. And when it comes to paying for the crisis measures, as we must, the taxes must not fall on younger workers.

It is right to expect affluent older property-owners to make a contribution. We cannot increase taxes on earnings, but not taxes on wealth when earnings are stagnant and assets have been booming. That should not be done out of hatred of wealth or in pursuit of generational war. It is just that if taxes have to rise we cannot expect the less affluent young to pay and to exempt the affluent old. The health effects of the virus have been harshest for the old. We must not let its long-term economic effects be harsh on the young.