From Stagflation to StagffluenceThe Hollowing Out of the Rentier Economy

As the cost of living crisis mounts, Rowland Atkinson and Andrew Baker look at the stagnation of wages and the rising polarisation between renters and owners of assets

In a year defined by a cost of living crisis causing enormous hardship, the sharply split experiences of affluent and straining households are characterised by a polarising form of stagffluence.

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Stagffluence not Stagflation

Across the political spectrum on both right and left there is talk of a return to 1970s-style stagflation. Global turmoil, rising food and energy prices and real wage stagnation threaten a new era of declining living standards for many.

But while both rising prices and economic stagnation are present, the conditions of 2022 are a very different beast, with contrasting causes and symptoms to the infamous stagflation of the 1970s. 

Stagffluence involves inherited and widening inequalities producing relative affluence for some, but seeming terminal stagnation for many more. It is a world in which wealth is inextricably bound up with home and asset ownership and the incomes both provide. 

The nature of this division is partially captured by Office for National Statistics (ONS) data showing that the top 10% in the UK own 43% of the wealth, whereas the bottom 50% own a mere 9%. The latter group also suffer the severest squeezes in disposable income due to rising prices. 

Today just over half a million homeowners in the UK own property worth more than a million pounds. Many own more than one property due to being able to leverage the value of existing homes, or because of inherited wealth from homeowning parents. Three-quarters of a million British households (772,000) now own a second home  (39% are for holidays, 35% for rental income,) a fifty per cent increase on a decade ago. 

In contrast, today around one-third of households have no wealth at all. While a third of second homeowners use their second property as holiday homes, the bottom two-fifths of households cannot even afford a one-week holiday.

Reaching for stagflation to diagnose the current cost of living crisis is a lazy and dangerous reflex, not least because it leads to a conclusion that the same medicine used to treat the 1970s stagflation is appropriate today

In such a fractured social context, language matters. Stagflation became a byword for excessive trade union power in the 1970s. It created a rationale for political and market restructuring, constraining the power of organised labour and introducing greater freedoms for business.

The 1970s crisis of stagflation was an entry point for neoliberalism. Markets were introduced into public services. Finance was made the centrepiece of the economy. Cultures of investment and asset ownership were promoted. Employee rights were eroded, and real wages were repressed for the bottom half. 

Reaching for stagflation to diagnose the current cost of living crisis is a lazy and dangerous reflex, not least because it leads to a conclusion that the same medicine used to treat the 1970s stagflation is appropriate today. Stirrings in this direction are already present in UK politics from both government and opposition voices in the form of proposals for tighter public expenditure, interest rate rises and calls for wage restraint. 

Today’s stagffluence is a more socially differentiated phenomenon than the 1970s stagflation. It has grown out of decades of political choices that have restructured the balance of power and distribution of wealth in society. 

In the UK, successive governments have promoted the interests of corporate backers in property ownership, construction and finance. Homeowners have been privileged through careful policy-making, while many in parliament are connected to the property lobby.

Alongside this sits massive offshore purchasing of housing and property to avoid tax. Central bank asset purchases through quantitative easing post-2008 crisis have further fuelled the wealth of the asset-rich. 

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Social division and the New Assetocracy

In 2021, even the right-leaning Spectator condemned policies that continuously subsidised an ‘assetocracy’ of wealthier pensioners, homeowners and shareowners.

Property is not a new faultline in British society, but it has become more pronounced. Under conditions of stagffluence, social division increasingly revolves around renter and owner, ownership and non-ownership of assets. 

These two social worlds do, of course, intersect.

In a small town in south Devon, we can find a retired homeowner with a mortgage paid off, decent pensions underwritten and an ability to avail of home equity for additional disposable income. Across the road, another owner has developed an extension into an annexe that is rented out for several thousand pounds a month of extra income on Airbnb.

On the next street, a young family rent their home from a local private landlord, taking around a third of an already low income. The parents work in insecure, contract roles, one in media, the other as a cleaner for ten pounds an hour. There is no longer enough money to cover essentials. Disposable income has evaporated, as has the dream of saving a deposit for a property purchase. This is the everyday stagffluence of the UK in 2022. 

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Economic Relations in a Bifurcated Economy

Following the stagflation of the 1970s, a new rentier economy was forged in the UK. Over the next 40 years, a period of increasing earnings inequality ensued. The financial crash of 2008 was followed by a long period of stagnation in productivity and real wages, hitting the living standards of most workers. 

Persistent wage stagnation and the expansion of non-traditional forms of work will be key challenges in the 2020s according to the Institute for Fiscal Studies (IFS). The Resolution Foundation expect current falls in real wages not to end until late 2023. The stagnation aspects of stagffluence will be most painful for the lower part of the UK income distribution. 

Some sectors however continue to benefit. Finance, IT and business services are all experiencing stronger wage growth. City bonuses pushed the figure for total average pay increases to 6.8% up to April of this year.

This is the very nature of stagffluence, as a bifurcated phenomenon, one whose impact is not shared evenly across the income distribution. 

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Hollow Firms in the Rentier Economy

The split between renters and owners is one example of the UK rentier economy that emerged following the 1970s. Another is the phenomenon of hollow firms. 

In the ten years between 2009-2019 around 20% of the world’s leading FTSE350 companies repeatedly paid out more in dividends and share buybacks each year than their annual earnings. They did this through accounting manipulations and issuing low-grade debt. 

In 2019, the year before the pandemic struck, 37% of S&P 500 companies, and 28% of FTSE 100 companies paid out more than their annual earnings. 

In short, the world of stagffluence is also one in which a strata of the world’s leading firms operate as conversion machines, concentrating greater short-term rewards and wealth in the hands of an assetocracy of shareholders and management executives, but at the expense of supply chains and the needs of consumers, suppliers and employees. 

Such extractive siphoning of wealth reduces productive capacity, disrupts supply chains, and increases cost-push price pressures while placing a downward pressure on real wages for many. The beneficiaries prosper, while a new economic reality strains and polarises the social fabric, risking social disorder. This is stagffluence 2022. 

This situation requires a different diagnosis and response to the stagflation of the 1970s. It calls for: scrutinising the multiple privileges, supports and reliefs provided to the new assetocracy and a systematic regulatory, policy, planning and tax incentive overhaul. For that to happen ‘stagffluence’ must become part of the political and economic conversation as a basis for concerted action to tackle inequality.

Rowland Atkinson is author of ‘Alpha City: How London was Captured by the Super-Rich’ and Chair in Inclusive Societies at the University of Sheffield.

Andrew Baker is Professor of Political Economy, University of Sheffield. and co-author with Richard Murphy of Making Tax Work.