Seriously Hard Times – Clem Sunter

Clem SunterIn London now they call it “the wedge”. It is when you run out of money around the 20th of the month because your wage or salary has all been consumed on electricity, rates, tube fares to get to and from work and other household necessities. In other words, it is the moment in the month that your accumulating expenses rise to meet what you were paid as a wage or salary at the end of the previous month. Since you have nothing to live on for the rest of the month, it is a daily meal of baked beans until the next month begins.

The middle class is now being seriously hit by the economic hard times scenario and is probably struggling more than at any time since the late 1940s, immediately after the Second World War. In those days, food was rationed and people lived frugal lives – I as a youngster being one of them. Another friend of mine told me that the front end of the planes in flights from London to Brussels has been renamed “Government Class” as the only passengers you find there are ministers and bureaucrats. Business executives now travel at the back of the plane which has been renamed “Business Class”. “Economy Class” rides bicycles. When do you recall state employees being on a better package that their private sector counterparts?

Interestingly, youth unemployment has hit record highs in many European countries and more frequently the idea of a “European Spring” is being mooted. Greece and Spain have already had their fair share of demonstrations but a general restlessness is creeping into society across the Eurozone. Where people are employed, many of them are working much longer hours than their parents did last century. It has been known, particularly in the investment banking industry, for companies to set the norm of 70 to 80 hour weeks which is 10 hours or more a day with no day at the weekend off. No wonder in the work that Chantell Ilbury and I do facilitating corporate strategy sessions that more top executive teams put their companies into the “Grindstone” quadrant of our Business Gameboard. It is where you keep yourself competitive by putting your nose to the grindstone and getting more output of fewer people.

One company actually told us that they were in the extreme version of “Grindstone” which they called “Empty Wheels”. When we enquired what state that was, the answer was the point where the hamsters quit the wheel because they are too exhausted to work. Stress-related illnesses are multiplying and the work/life balance has gone straight out of the window. Even Australia, which is not known for having a cruel work ethic, has introduced migrant labour into its mining industry with its “fly in-fly out” system, putting pressure on the marriages and quality of life of those who spend two to three weeks a month away from their families.

The retirement industry is in a nightmare financial condition in the UK as a result of pensions and provident funds not increasing their annual asset value the way they did 20 years ago. As one pensioner put it: “It’s now a race between poverty and death!” Many private nursing homes have high vacancy rates as a significant proportion of middle and upper class couples in their 80s can no longer afford the monthly fees. House prices have begun to rise again, but it is only because the Bank of England continues with its policy of monetary easing to keep mortgage interest rates down. When the latter go up again, expect the same kind of pre-Crash problems we had in 2006 and 2007.

Due to the effect of “the wedge” I talked about at the beginning of the article, the cheaper alternative rules in virtually every sphere of commercial activity. Discount retail chains are making hay while the sun shines and I have just got back from a holiday resort where 40% of tourists now stay in rented houses and flats as opposed to hotels of any star (the previous long term average was 10%.)

Meanwhile, the super-rich are still okay because stock markets in America and other countries are again in a buoyant mode with the bulls rampaging past the bears. Their only worry is that governments are showing signs of behaving like those nasty medieval monarchs who used to send soldiers around to collect tithes and taxes. Even Swiss banks are having to cough up the names of secret account holders to American tax authorities. Tax havens are no longer havens.

I guess two things catch my eye about the current situation. First, the latest gap that is opening up is not so much between the rich and the poor as between the rich and the middle class. The second thing is that neither the media nor economists are focusing on this issue. Both have reacted with surprise at, on the one hand, Ed Miliband’s proposal to freeze energy prices to grant middle class families temporary relief from “the wedge” in the UK; and, on the other hand, David Cameron’s offer of tax breaks to couples when they first get married. Yet, saving the middle class is definitely considered a vote-winner in the minds of the politicians.

So welcome to the hardest of times if you are in the middle of the social spectrum. I hope you survive.

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