I am part of the lucky generation. I am a member of that cohort of people born between 1946 and 1965, the baby boomer generation. We are lucky because we came into the world in countries of advanced capitalism at a time when there was unprecedented economic growth, near ‘full employment’, relative low inequality of wealth and income and strongish labour movements able to extract concessions from Capital on labour rights, a welfare state, universal health and education, public housing.
Capital was able to concede these gains for Labour because it was experiencing high rates of profitability after the destruction of capital values during the war. It could draw on a huge reserve army of labour in Europe and Asia, along with new technology, to exploit. And global capitalism had one hegemonic power, the US, that could provide credit and investment in Europe and Asia within Pax Americana. In short, this was a Golden Age for capitalism. Concessions to labour were possible rather than launch into a desperate class battle.
The graph below (the simple mean average world rate of profit from the work of Esteban Maito (Maito, Esteban – The historical transience of capital. The downward tren in the rate of profit since XIX century) shows the golden age of the 1950s and 1960s in profit terms.
But the Golden Age was unprecedented and relatively short. It was not as long as a ‘lucky half century’ as Andy Haldane, chief economist at the BoE, has claimed in a recent paper (Haldane on growth). This lucky period was over by the late 1970s as capitalism entered a crisis of falling profitability.
But we were the lucky generation. When I graduated from university in the late 1960s I did not have worry about getting a decent job on the whole and I had no student debt. And during my ‘prime’ working years of 35-54, I was able to maintain a stable and even rising income, able to get a mortgage that allowed me to build up some property wealth as the housing bubble exploded from the 1990s in many countries. Now many of us aged over 55 years are relatively better off.
Of course, here I am talking about the middle-class, middle income group of baby boomers. Only a small minority went to university in the 1960s and 1970s. But at least in the 1960s, if you failed to get into university, companies offered apprenticeships and there were state-funded training schemes and qualifications. Nevertheless, poverty still claimed 20% of the baby boomer generation at least and, although real incomes rose for most in the Golden Age, it was not the case for a sizeable minority. Now there are millions of retired baby boomers living on just the state pension and means-tested benefits and dependent on public health and limited care facilities for the aged.
But the years 1948 to 1973, as the work of Thomas Piketty (PikettyZucman2014HID) and others have shown, was one of relative prosperity that was better shared among the population by a long way than now. That was a product of faster economic growth. The US enjoyed rapid labour productivity growth, averaging 2.8% annually. Income inequality fell, with the share of income going to the top 1% falling by nearly one-third, while the share of income going to the bottom 90% rose slightly. Household income growth was also fuelled by the increased participation of women in the workforce. Prime-age (25 to 54) female labour force participation escalated from one-third in 1948 to one-half by 1973. The combination of these three factors increased the average income for the bottom 90% of households by 2.8% a year over this period.
It was different for what we might call, in the UK, Thatcher’s children, those born just before or after the 1980s double-dip recession and becoming working age adults in the late 1990s onwards. My son got a degree in computer science and has a job in IT in the banking sector of the City of London a typical target of aspiration in these times He earns good money as a result and is thus way ‘luckier’ than millions of others. But even he is worse off than the lucky generation. He works as a precarious contractor, with no sick or holiday pay and no pension. He works long and inconvenient hours on a contract that could see him sacked tomorrow without any pay-off. He is under stress.
There is much discussion and propaganda among mainstream economics that the real divide in society now is not between labour and capital, or between rich and poor, but between the young and the old, i.e. between my son and me. The old, like me, are sucking away the incomes and future pensions of the young and increasing taxes for our aged care and health. Many of us old baby boomers have nice homes without mortgages while the next generation and the one after that cannot get on the mortgage ladder. A recent study found that in London, there were more people forced to rent than there were owning their homes or renting from the state or from social housing.
The baby boomers (above 55 years) have increased their wealth dramatically since the 1980s while Thatcher’s children (35-54) have lost out. Indeed, the Great Recession has created the largest wealth inequality gap between young and old on record. The wealth gap between old and young American households has quadrupled in the past 25 years. In 1984, households age 65 and up were 10 times wealthier than their younger counterparts. Now, they are 47 times wealthier.
Disproportionate income gains are also driving the divide. Younger households have seen a 3% increase in income over their counterparts 26-years ago, while older households have had their incomes increase by 25%. Student debt has played a strong role, as more of today’s youth attend college than in 1984. Spiralling tuition costs have left today’s young adults more burdened by college debt than past generations. As a result, poverty for younger households in the US has reached a record high of 22%, nearly doubling since 1967. Older households have seen poverty rates decline over time, and are now at a record low of 11%.
It’s same story in the UK. Recently, the FT argued that Britain’s young adults, who for much of the 20th century enjoyed living standards well above average, have been displaced by the rise of the comfortably-off pensioner in the most dramatic generational change in decades. Replacing the young in the premier league of living standards have been people in their 60s and 70s. The average 65-70-year-old used to have lower living standards than 75 per cent of UK families. Now people in the same age group can expect to be almost in the top 40 per cent of family incomes.
Moreover, we baby boomers won’t give way to the next generation. Ernst & Young ITEM Club reported that much of the increase in the UK workforce over the past five years has been due to older people either staying in work or going back to work. Rising participation by older age cohorts, it says, has added even more people to the labour force than immigration. People who ten years ago might have retired are now staying in work.
The FT says this is “gains for the old at the expense of the young” as though there was a pot of unchanging wealth and income that must be shared. But is that the case? What really has happened is that wages have dropped as a share of GDP, inequality has risen, capitalism has failed to maintain the Golden Age as profitability of capital fell.
In response, under the neo-liberal period since the late 1970s, cuts in wages, welfare, pensions and public services were made and job security, conditions and rights were curtailed in order to reverse the fall in profitability. It was the failure of capitalism to deliver, not the greed of old baby boomers like myself.
The reason many older people are staying at work is because their pensions are inadequate (annuity rates are at an all-time low) and they must stay in work now well beyond the expected retirement age.
The number of people in defined benefit pension (ie good final salary schemes) has been falling steadily and will decline sharply from here.
“The young aren’t poor and the old rich because the old are snaffling the income and benefits from the young. The old are richer because they lived through a time when the country’s wealth was distributed more evenly, so more people had more. Intergenerational inequality is really just another story about falling incomes, less secure employment and job polarisation.” from the excellent
Will there ever be another ‘lucky generation’ under capitalism or is that the last we shall see? After all, there have been other short periods in the history of capitalism that could be described as a golden age: say the period from the mid-1880s to the 1900s in the UK and Europe, when the labour movement grew stronger, mass socialist parties were formed and there was the beginning of a ‘welfare state’ in Bismarkian Germany and Liberal England. Maybe, if and when the current Long Depression comes to an end, capitalism could have a new burst of life, based on a range of new technologies and surplus labour in the emerging economies of Asia. This could generate another period for a new lucky generation. See my old book, The Great Recession, p302 (GREAT RECESSIO).
But it gets more difficult each time for capitalism to deliver.