by Michael Goldfarb
Comparing the Divide: Middlesbrough, England and Sheboygan, Wisconsin both built thriving middle classes over decades of successful manufacturing. In the United Kingdom, income inequality is climbing and threatens to return places like Middlesbrough to an Dickensian age of “haves” and “have-nots.” Sheboygan, with an income inequality level slightly higher than England’s, is proving resilient to a similar trend of middle class erosion across the United States.
MIDDLESBROUGH, England — “Born of Iron, Made of Steel.”
That inscription is carved into the gates at the site of an old iron works here in this provincial seat of 138,000 in northeastern England.
South Tees Industrial Park is a government-subsidized technology and light-industry development. It employs far fewer people than the old steel works did when this town represented a muscular and growing middle class in England that was forged out of the fires of World War II and tempered by the decades of rebuilding and growth that came after.
Today, the residents of Middlesbrough are part of an anxious and withering middle class in the United Kingdom that shares many of the same worries that keep the middle class in America up at night.
On a cold, winter’s evening in the courtyard of Middlesbrough Town Hall, anxiety was in the air. The local council was preparing to discuss national government spending cuts and their impact on the municipal budget. Businesses and citizens rely on this government support. It is what holds this place together.
Outside, in the below-freezing temperatures, a small knot of workers from Ayresome Industries were demonstrating against the cuts, their faces framed against the darkness by the lights of a local television crew. Their tiny company, which for almost 90 years has provided jobs to disabled workers, was slated to lose its council funding as part of a national austerity plan. Ayresome’s 38 people, who manufacture window frames and industrial brushes, stand to lose their jobs, and given their disabilities and the fact that they live in one of the UK’s highest areas of unemployment, they are unlikely to ever work again.
Scenes like this are being played out in town halls around England and Wales. The UK has a budget deficit. The Conservative-led coalition government wants to shrink it via austerity spending cuts.
The result is demonstrations like this, people desperately trying to cling to the lifeboat of work in one of the more unequal countries in the developed world. According to the most recent figures from the Organization for Economic Cooperation and Development (OECD), Britain is more unequal than three-quarters of leading industrialized nations.
To put the age of growing inequality in context, consider that the amount of annual subsidy Ayresome received from the council was around £400,000 ($646,000). That sustained nearly 40 jobs, while the average Goldman Sachs’ bonus from last year was about $400,000, according to the Guardian newspaper’s business page.
Middlesbrough’s mayor, Ray Mallon, arrived at the scene. A colorful local police chief before taking up politics, Mallon listened to the workers, expressed sympathy, then headed up to the council chamber to deliver a report on the cuts he was proposing to the budget.
Mallon told the council that in the two years since the government came into office, “We have made £28 million worth of budget reductions, which included 450 job losses.”
Middlesbrough is particularly vulnerable to austerity cuts. More than one third of the town’s jobs are in the public sector. And the worst of the austerity measures is apparently not over.
Mallon warned, “We have some serious, serious times to come.”
Cuts are coming from every direction as the Conservatives seek to shrink the size of Britain’s welfare state. But how can that help a town where, Mallon pointed out, “Two-thirds of welfare recipients in Middlesbrough have jobs. They are working.”
It’s just that they don’t earn enough to get by without help from the government. Take that little bit of subsidy away and the people are left wondering and worrying. Where would Middlesbrough be then?
Mallon is not a leftist. He is a combative Independent. He is all for deficit reduction and breaking the cycle of welfare dependency. He reminded a reporter that he used to share platforms with British Prime Minister David Cameron, back in the day. That was when Cameron was seeking office and said, “More unequal countries do worse according to every social indicator,” noting that he wanted to see a Britain that was “more equal.”
In 2009, Cameron explained in a speech, “According to almost every quality of life indicator … per capita GDP is much less significant for a country’s life expectancy, crime levels, literacy and health than the size of the gap between the richest and poorest in the population.”
But now critics say Cameron is pursuing policies that can only increase inequality. 660,000 public sector workers have lost their jobs since the government came to power in 2010 – a time when the private sector is mostly creating part-time and low paid work. As Mallon put it, the cuts are “too quick, too deep, too savage.”
Middlesbrough lies along the banks of the River Tees just before it flows into the North Sea.
In the hills just south of the city, ironstone was discovered in the mid-19th century. There were vast deposits of coal in the same area. With a ready supply of fuel, soon giant smelters were built to turn the iron into steel.
Teesside became Britain’s industrial powerhouse. Every piece of steel in the Sydney Harbour Bridge was forged in Middlesbrough and shipped to the other side of the world. The ICI chemical factory and the British Steel plant provided full employment. The tangle of massive metal chimneys constantly belching toxic smoke into the lowering clouds reputedly inspired one local boy, film director Ridley Scott, in his designs for Blade Runner.
There may have been environmental issues in Teesside, but 40 years ago life in Middlesbrough was better, according to Mike Hopkins, principal of Middlesbrough’s College of Further Education.
“Forty years ago, Teesside was the third most prosperous region in the UK, now Middlesbrough town is the 8th poorest in the UK,” Hopkins said.
Hopkins pins the town’s decline on British government failures. “Successive governments pursued the wrong policies. Starting in the 80’s, the Thatcher government tilted away from manufacturing towards financial services. Then, during the Labour government they emphasized creative industries.”
Gesturing out his window, Hopkins lamented the failure to invest in improved infrastructure for manufacturing.
“We’ve got this giant chemistry set around us. It could have and should have been sustained into transition by the UK government,” he said. “That’s what they did in Germany.”
Instead, British Steel and ICI no longer exist. They were broken up and parts of them were sold off to private equity firms. There is still steel and chemical manufacturing in Teesside, but these industries employ a fraction of the number of people they used to.
Middlesbrough’s recent history perfectly tracks Britain’s history of rising inequality. Forty years ago, when Middlesbrough was prosperous, Britain was a much more equal society, as measured by the Gini coefficient.
The Gini Index is a measure for describing wealth inequality. A zero Gini coefficient represents perfect equality. A one on the Gini Index represents one person owning everything. When you get above .330 societies are, by most economists’ assessment, considered to be significantly unequal. The UK has a Gini coefficient of 0.340 and the US figure currently is around .450, according to the CIA World Factbook’s most recent available data. Both the UK and US rank near the bottom of the 34 leading industrialized countries, with the UK at number 25 and the US at number 32 for inequality.
Britain’s Gini coefficient was .250 in 1979, according to a 2011 report by the OECD, so income inequality has increased dramatically. To put these numbers into simpler terms, consider this: In 1979, the top one percent of UK earners took home six percent of national income. Today, the top one percent take home 15 percent of national income, according to OECD figures.
How unequal is British society today? Professor John Hills of the London School of Economics, answered the question with another question:
“Do you get Downton Abbey in the US? We are back to Downton Abbey levels of wealth inequality.”
In 1918, when the denizens of Downton were celebrating victory in WWI, the top 10 percent of rich Britons brought home 37 percent of national income. Today that figure is at 40 percent. But in between were decades when wealth inequality contracted, starting with World War II. Throughout these decades, greater equality created a solid middle class.
Britain’s modern era of inequality began in 1979 when Margaret Thatcher was elected Prime Minister. Within a decade, Thatcher cut the top rate of income tax in half, from 83 percent to 40 percent. The figure 83 percent is astounding, but it is accurate and it prompted many of Britain’s wealthiest people to relocate to low-tax countries like Switzerland and Monaco. Middlesbrough’s industrial decline began.
Hills pointed out that the richest 10 percent used the extra money in their pockets not to reinvest in the economy and create jobs, but to buy property and shares. Their income increasingly came from rents and dividends, not work. Money earned that way was taxed as capital gains. That tax rate was just 18 percent. So more of the share of the nation’s wealth went into their pockets, explained Hills.
When he became the area’s top cop in the early 1990’s, Ray Mallon instituted a zero-tolerance policing program. As a result, when you drive around the town you don’t see the usual signs of economic decline and urban deprivation. There’s no graffiti or smashed-in windows. Litter doesn’t line the gutters.
Mallon, who has been mayor since 2002, explained, “It’s not something you can see as you drive around. Inequality shows in high crime, low education attainment and poor public health.”
Life expectancy is one of the clearest measures of how inequality affects Mallon’s community. Recent figures show that the most affluent 10 percent of men in Middlesbrough can expect to live about 15 years longer than the least affluent 10 percent. For women, the figure is 11 years.
As mayor, Mallon has to deal with the human reality of those living on the wrong side of inequality numbers. The effect of 40 years of progressively deeper impoverishment has led to a generational crisis, with a third generation being born into a world of welfare dependency and low aspiration.
“They live for today, they might say tomorrow, but not much further,” he said. “They’re not even thinking about a job – they’re existing. No hope, no aspiration, no ambition.”
In nearby Grangetown, in the shadow of what was the ICI chemical plant, grandmother Maureen Aiken agrees with Ray Mallon, but only up to a point.
“There’s people round here don’t realize what a job’s like. Never had one,” she said.
On the surface, Aiken, 58, and her family fit Mallon’s description of generational crisis. Grangetown, on the eastern side of the city, is an area where more than 80 percent of children are raised in poverty. Several of Aiken’s grandchildren have been in and out of foster care.
But sitting in her living room, the heat turned off because it is too expensive to run even on the coldest days, she told a story that tracked Britain’s decades-long march towards inequality.
Work was plentiful in the early 1970s when Aiken left school at 16 and began her working life. She was 21 when she had her first child, and she had another the following year. When her relationship broke down she returned to York. She never stopped working, although money was often tight.
From 2000 to 2005, the poorest in Britain did relatively better than the wealthiest in gaining a share of the economic pie. The reason was simple: jobs. Unemployment was half of what it is today and taxes on the low paid were light.
Those were golden years for Aiken. She was the chef at the Black Bull Pub in York. She earned a little over £500 a week, good money for that time and in that part of England. She had to give the job up, she said, because her teenage daughters, unsupervised, were getting into trouble. They got pregnant. She stopped working to have time to hold her family together.
There are few jobs in the local area for those like her with limited skills and no college degree, she said. Now she gets by on £567.30 ($914) a month in welfare benefits. But working is what she has always done, so she volunteers when she can at Thrive, a church-based community-organizing group.
She had a question for Ray Mallon: “Where’s he going to get the jobs from?” She fired out the question again, emphasizing each word, “Where Is He Going to Get the Jobs!?”
At the other end of the economic scale, life in Middlesbrough is sweet.
The A66 at rush hour was sluggish on a recent afternoon as people headed to places like Yarm and Wynyard and other pleasant old villages snuggling up alongside the North York Moors National Park. Here houses can cost a million pounds and the private schools have long waiting lists.
“Recession? It’s a load of bollocks,” said Steve Cochrane. “Try booking a top restaurant this Saturday night. You won’t get a table.”
Cochrane sat in the William Hunt room of Psyche, his high-end clothing emporium downtown. It’s thirty-five thousand square feet over three floors packed with Boss, Armani and the Savile Row-based Hunt.
“Middlesbrough’s a very disparate place,” he smiled. “My customers are very upbeat about the economy.”
Cochrane is a local lad made good. A former singer in a punk band, 30 years ago he started selling clothes from a market stall in Redcar, a seaside town 10 miles down the A66. Today his business has a turn over of £5 million a year, and online sales are taking off. He sees upside everywhere.
But when asked to look down the ladder and talk about local inequality, he turned the question into a national one.
“There is inequality in Britain. It’s in the North-South divide. There’s far too much government investment in London and the Southeast. It’s pissing me off more and more,” he said.
There is a shocking disparity between London and the northeast. The crash of 2008 led to an 11.31 percent decline in household wealth in Middlesbrough’s region. London’s average household wealth went up by 17.88 percent during the same period.
The prognosis for reducing inequality in Britain seems poor. The economy is not growing. The day of the council meeting, government officials acknowledged austerity measures would continue for at least five years.
So Mallon continues to make cuts. Gone is £8.9 million ($14.3 million) from the Working Neighbourhoods Fund, a stream of central government revenue designed to help people get back into employment and to acquire and renovate houses for people in need. It’s precisely the kind of program that could have helped Maureen Aiken.
The irony is not lost on people here that $14.3 million is just about equal to the bonus paid last year to Bob Diamond, former head of Barclay’s Bank. He was forced to resign over the bank’s role in the Libor interest rate fixing scandal. Barclay’s led the way in fixing the London interbank lending benchmark so its derivatives traders could make money betting on the rate’s movements.
”I shake my head in disbelief,” said Mallon. “We can’t become fixated on this, we can’t become paralyzed. We have to go forward.”