In this article previously published in The Scotsman, WEAll Scotland's Dr Lukas Bunse and Frances Rayner argue that the cost of living crisis demonstrates the urgent need to redesign our economy.
Earlier this year, the Office for Budget Responsibility warned that the UK faces the biggest fall in living standards since the 1950s.
In response, economists have called on Boris Johnson to tackle the root causes of the crisis by reigning in excess profits and boosting wages, rather than asking ordinary people to shoulder the costs of inflation. We need long-term solutions to a crisis that shows no signs of abating.
While economies will always be susceptible to external shocks, like pandemics and wars, a ‘well-being economy’ would prevent the prices of essential goods spiralling beyond people’s reach and it would ensure no one’s income fell below what they needed to stay afloat.
There is a growing movement in Scotland, and around the world, to transition to just that. Instead of prioritising economic growth for its own sake, a well-being economy would ask first, how can we ensure everyone has enough to live a dignified life – a life that allows us to connect with others, to participate in the decisions that affect us and to enjoy a healthy natural environment? From there we would ask, which businesses and industries do we need to nurture, and which need to be scaled down? And how can we do this equitably?
In today’s economy, the prices of essential goods like food and energy are determined by whatever companies and shareholders deem optimal for their returns, not what people at the sharp end of our economy can afford to pay.
Soaring energy prices for consumers have translated into massive profits for oil and gas companies, with BP and Shell on track for a combined profit of £40 billion this year.
While more and more households are forced to choose between heating and eating, the chief executive of BP has likened his company to a “cash machine”, generating returns for already wealthy investors.
The massive profits of oil and gas companies are an example of rent extraction – the phenomenon where people earn money because they own wealth or resources, not because they create useful products or services. These excess profits derive largely from their control of natural resources which arguably belong to all of us, and whose continued extraction harms us all. Or consider the landlord who uses their existing wealth to buy a flat with the sole intention of renting it out for a profit.
Prices that are inflated to cover excess profits for businesses and shareholders come with a double cost to society. Not only do we pay extra as individuals, but governments need to spend considerably more – essentially subsidising businesses – to try to ensure people’s basic needs are met.
For example, the new cost-of-living support payments from the UK Government will end up paying bills that energy companies profit from. Similarly, the UK Government spends around £23 billion of housing benefit each year supporting people to pay rents to private landlords – effectively subsidising people making money out of owning property.
In a Wellbeing Economy, we would prioritise ensuring everyone could afford food, housing, energy, healthcare, childcare and transport. The state, local government, community-owned enterprises or not-for-profit providers would be the primary providers of the essentials we rely on.
Regulations like rent controls would prevent prices spiralling. And we would invest in long-term, preventative measures like insulating our homes so they are less energy-intensive and costly to heat.
Eliminating excess profits from the price of essential goods and services will not entirely prevent future incidents of high cost of living increases. So it is equally important to make sure that nobody’s income falls below what is needed to live a decent life.
A well-being economy would nurture and incentivise alternative business models like social enterprises, cooperatives and employee-owned businesses where profits are not concentrated in the hands of distant shareholders, and are instead more likely to benefit employees, communities and the environment.
Governments can also make living wages, living hours and other fair work practices conditions of receiving public contracts and other support. Employees in the public sector would receive pay increases at least in line with inflation.
In the private sector, mandatory worker representation on boards or automatic enrolment into unions would strengthen the voice of workers and help make sure that they are fairly rewarded.
Measures like a minimum income guarantee, which the Scottish Government has committed to deliver, would play a key role in ensuring that no one was left without enough money to live with dignity. This could be funded through taxes on income that derives from owning wealth or resources, for example land value tax or capital gains tax.
Crucially, many of these measures would not only dampen the impacts of the cost-of-living crisis, but also help to address climate change. For example, large-scale home insulation would cut energy bills and reduce the need for fossil fuels.
Taxing excess profits from fossil fuel extraction would reduce investments into further harmful production. While the UK Government’s windfall tax on oil and gas companies is welcome, the accompanying tax breaks for extraction will serve to deepen our dependence on fossil fuels. In a well-being economy, economic decisions would factor in their impact on the natural environment we all depend on.
An economic system that lurches from crisis to crisis, leaves one in four children growing up in poverty, and fails to protect the health of our planet, is simply not fit for purpose.
More than short-term sticking plasters, we need to reprogram our economy so it is fit for the 21st century. Only a Wellbeing Economy can protect us from the harsh reality of the economic system we have inherited. The Scottish Government must use its upcoming Wellbeing Economy Monitor and the review of its National Performance Framework to put multidimensional measures of well-being in the driving seat of our economy.