After her “mini-budget” blew up in her face and she was forced to sack her chancellor to try to save her own political skin, Liz Truss is still insisting her main aim is to "grow the pie".
In all the other mayhem, the one question that has rarely been asked in the past few weeks is: what exactly is "the pie"? It’s certainly a lot more than simply increasing GDP numbers or improving productivity. As a woman heckler famously shouted at a Brexit debate in Newcastle in 2016 when a speaker talked about GDP: “That’s your bloody GDP. Not ours.”
So what is the real pie, or “our GDP”? Who makes it and who benefits from it?
In order to understand better what really creates wealth in our society, let’s follow the lead of that woman in Newcastle six years ago.
The activities that produce for us the goods and services that we need and want are not really captured in the way we currently measure economic activity, which focuses entirely on monetary exchanges.
Wages for Housework! Some of us are old enough to remember when this slogan emerged during the 1970s upsurge in feminism in the UK.
At the time many, even most, feminists thought it was probably a bit extreme and impractical – although it made a point about unpaid domestic labour that gets ignored in modern economics (and politics).
But it turns out the "wages for housework" campaigners had rather a good point.
In 2018, the ONS released data trying to estimate the size of activity that goes uncounted in GDP because it is not in the direct form of monetary transactions. In the snazzily named "household satellite accounts" they tried to measure "the value of adult and childcare, household housing services, nutrition, clothing and laundry, transport and volunteering." The results are really quite staggering.
For 2016, they estimate the size of these unpaid household services at £1.24tn (£1,.240 bn) or 63% of the size of official GDP. (I have used 2016 figures throughout this article. They will obviously have changed by now, but it gives a good indication of relative sizes of different chunks of "the pie".)
Or, to put that another way, the UK economy produced goods and services – value – to the tune of more than half as much again as official GDP figures showed, mainly in the home. And mainly by women.
I call this the social sector, alongside the private and public sectors. The boundaries of all three are fuzzy and their interactions and interdependencies are important. But the implications for economics, politics and public policy of these figures for the social sector cannot be under-estimated.
When David Cameron, for example, was trying to promote his "Big Society" idea in the 2010 Conservative general election campaign, and subsequently as part of the coalition government, no-one had any idea how much it already existed.
According to the ONS survey, the voluntary sector generates around £24bn of value through unpaid volunteering (as shown in the above pie chart). If we add to that the approximately £12bn a year in money and goods donated to charities, we get somewhere around £36bn of activity.
Cameron’s Big Society was largely about mobilising more of this social value and shrinking the state’s role in welfare provision. But the state (public) accounts for about £1,240bn of GDP.
So the Big Society – if viewed as being just the voluntary sector, voluntary work and donations – was only the equivalent of about 3% of public sector services and benefits. The idea this could be expanded enough to significantly reduce the size of the state was ambitious, to put it mildly. Which is not to say it isn’t a good idea – it is – but it needs to be seen in perspective.
The really big numbers – roughly one trillion pounds' worth - in the social sector were not in charitable and voluntary work outside the home and family – they were mostly within them.
Economics largely ignores this non-monetised value creation – and how it relates to the monetised "official" economy. The latter has largely been debated in terms of the relationship between the private and public sectors, and the dynamics of the private sector. But this third sector – let’s call it the “social economy” – is clearly of huge importance.
"Economics largely ignores this non-monetised value creation – and how it relates to the monetised "official" economy"
The potential questions that should be being asked – but aren’t – are legion.
For example, is the social sector’s £1.24tn stable, rising, or declining? Is it becoming more or less productive? What impact does it have on the other public and private sectors, and what impact do they have on the social sector?
To what extent are activities that used to be counted in the official, monetised, economy moving into, or out of, the social sector?
The growth of the service sector, and self-service practices in things like retail, has transferred a lot of work from paid employment to unpaid domestic self-service work – so from the private sector to the social sector.
When someone at home spends hours researching and booking a holiday on the web, they are replacing the job of someone in a travel agents, for example. This has real impacts – as Thomas Cook recently discovered. This is work being transferred from the private to the social sector.
What effects do these sorts of changes have on official productivity? If, for example, it was eliminating low-productivity activities from the official figures, it would boost average productivity numbers. Does it? And by how much? It’s not clear anyone knows.
Public vs private vs social
Politics, and public policy, over recent decades has focused on a debate about the relative size of the state and the market and the relationship between them. The political right claimed (wrongly) that only the market and capitalism create value or wealth. The left sometimes challenged this, but more often focussed on how wealth should be (re)distributed.
Neither side really attempted to understand the role that both the public and private sectors, together and separately, played in creating and distributing value in society.
In the UK the split is roughly 80/20 between private and public sectors in the official economy.
But when the "social economy" is added, the picture changes dramatically.
The overall real economy, or "the pie", is much larger. The private sector is far less dominant, decreasing to only just over half of all real economic activity. And the relationship between the three sectors becomes a whole lot more complex.
Experts like Diane Coyle, Bennett professor of public policy at Cambridge University, have long been pointing out the limitations of GDP numbers – developed for the industrialised economies of the late 20th century. Coyle’s book GDP – a brief but affectionate history sets out some of the reasons why GDP has always been flawed but has become more so in the increasingly intangible, service dominated, economies of the early 21st century.
To which we can now add: and what is an economy anyway? Are mums (and dads) providing "free" domestic services to young workers to enable them to get to work in good order just as much part of the real economy? Or caring for adults at home with chronic illnesses or disabilities?
Any radical policy agenda for transforming 21st century society needs to start addressing these issues.
PUBLIC AND PRIVATE AND SOCIAL - TOGETHER
Each of these sectors – private, public and social – has strengths and weaknesses. Each can, within itself, in different ways, both create and destroy wealth or value. Each can interact positively or negatively with the other two.
As already said, much political debate has focussed on only two of these sectors – the private and public. And much of that debate has pitched the two against one another.
More recently, there has been something of surge of interest in more constructive approaches and how the two sectors can work together positively and how to prevent the more egregious ways they can hinder one another. Good examples of this can be found in the work of thinkers like Mariana Mazzucato, Will Hutton or Andrew Gamble in the UK.
As discussed earlier, there was a very brief flowering of some thought on the Conservative centre-right about the role of the social sector during David Cameron’s Big Society period – but it quickly faded away. Geoff Mulgan, on the centre-left, produced some interesting ideas in his book Social Innovation.
"There was a very brief flowering of some thought on the Conservative centre-right about the role of the social sector during David Cameron’s Big Society period – but it quickly faded away"
For an international perspective, Raghuram Rajan’s The Third Pillar and Jaideep Prabhu’s How Should A Government Be? The New Levers of State Power are based largely on Indian experiences of a more productive relationship between the three sectors.
The Covid pandemic produced examples of the best – and worst – of all three sectors and the best and worst of their interactions. The surge in volunteering and other forms of social support and solidarity was impressive.
However, the inability of the public sector to take full advantage of the surge in social solidarity during the pandemic – especially at central government level – was disappointing. As was central government’s failure to understand the capacities that existed in the local public sector and the potential for local collaboration across all three sectors.
It’s time we understood much better what is "the pie" that we ought to be growing?
Colin Talbot is emeritus professor of government at the University of Manchester and a research associate at the University of Cambridge