Socialist Party documents

British Perspectives, March 2014 congress


[Next]

Economy

9. At root the growing radicalisation that is developing is a reflection of capitalism's continuing inability find a way out of the crisis. The hopes of the capitalists worldwide, that their system would now have recovered from the crisis, have been proven false, as the IEC thesis explains. And what of Britain? According to the hyperbole of the capitalist press, we are now entering the sunny uplands of economic growth! This does not fit with the experience of the overwhelming majority, who see only endless austerity and remain pessimistic about the outlook for the economy. The annual State of the Nation poll was reported in the press as showing increased confidence in the economy. This was accurate only in so far as 29% currently say they are optimistic, compared to only 9% at the start of 2012. Hardly an indication of widespread confidence! The survey also reports that the positive minority are disproportionately concentrated among the middle class. If real economic growth was on the cards it would be likely to be positive for the prospects for class struggle in Britain. The mushrooming of the $15 an hour campaign in the US is partially linked to a growing confidence among workers due to the economic recovery, extremely limited though it is. But even US levels of growth, or the mere perception of such growth, does not seem to be on the cards in Britain. A number of economic analysts are making upbeat predictions. Capital Economics, for example, predict that the UK economy will grow by 3% in 2014, and that it will be the "leader of the pack" among G7 nations. In reality, however, the UK economy remains 2% below its peak, and manufacturing is 9% below levels in 2008.

10. British manufacturing remains exceptionally weak. It is true there is some limited growth in some sectors. Car production, for example, is predicted to surpass the previous record (set in 1972!) of 1.92 million units by 2017. Today, there are only around 180,000 workers directly employed in car manufacturing, a tiny fraction of the numbers employed in car production in 1972, when then were the same numbers working at British Leyland alone than are employed across the entire industry today. The remaining car workers are incredibly productive, giving a glimpse of how it would be possible to meet humanity's needs while cutting the working week in a socialist planned economy. Under capitalism, of course, it means longer hours for a few while others are thrown on the dole. The productivity of modern car workers is also an indication of their potential industrial muscle, while the global character of the industry means that international solidarity is an important aspect of conducting a successful struggle in this sector. British car manufacturing is extinct, with not one of the mass-production car plants in Britain owned by a UK company.

11. There are likely to be strict limits to how far growth goes, even in this currently more 'positive' sector. Lack of markets was a huge problem for the car industry even before the economic crisis hit. Around 80% of cars produced in the UK are exported, mainly to the Eurozone, where living standards continue to be squeezed hard. Britain's manufacturing industry failed to compete for what little market exists even when sterling was at its lowest point; it is now at its highest level for five years. New car sales in Britain increased by 10.8% in 2013, but this is likely to be a short-term blip. Having delayed replacing their cars since the beginning of the crisis, a section of the population is doing so now, hoping that the economic situation is easing and, in some cases, having easier access to credit. PPI payments have also given some people's finances a one-off boost. Unless their living standards actually increase, however, this will not result in a long-term return to pre-crisis levels of spending, on cars or anything else. Average wages in Britain have fallen by 5.5% since 2010 - to their lowest level since 2003. Only the devastated economies of Greece and Portugal, alongside the Netherlands, have suffered a greater fall. Chancellor George Osborne predicts that it will take until 2018 for real wages to return to their pre-crisis level - a real lost decade for workers' living standards. Figures for the second half of 2013, if the more accurate RPI measure of inflation is used, indicate that prices were rising at double the rate of wages. Inflation may have slowed, mainly as a result of worldwide deflationary pressures, but there is no sign of wages recovering.

12. The fact that the head of the CBI, John Cridland, used his new year message to call on employers to pay more than the minimum wage reflects a fear of the revolt that is brewing over endless austerity. It is noticeable that even Dave Prentis, general secretary of UNISON, has been forced to put forward demands on the question of pay, such is the mood building from below. The Tories' call for a small increase in the minimum wage and Osborne's suggestion it should be raised by more than the rate of inflation also reflect a desperate attempt to win working-class voters by doing something for the poor, other than kick them in the teeth! Only crumbs are on offer however. If the minimum wage had actually increased on the basis of RPI since 2008 it would now be 50p per week more than it is. None of the main parties - including Labour - has committed to introducing the 'living wage'. Even this figure - 7.65 an hour nationally and 8.80 in London - is not a real living wage. The figure is calculated to take account of benefits; without those it would need to be 11.30 an hour in London to meet even the basic necessities of life.

13. There is another reason that sections of the capitalist class are raising the question of the minimum wage. It reflects awareness that an increase in incomes would increase the market and therefore improve prospects for economic growth. That is not to suggest that wages will be raised without a struggle by the working class. It is one thing for the bosses' organisation to recognise the general economic benefit of an increase in wages, quite another for individual capitalists to cut across their own profits by raising their employees' wages. According to the CBI's own poll only 7% of its members intend to raise salaries by more than inflation.

14. Far from a 'march of the makers' the British economy remains overwhelming reliant on finance and services, which make up 78% of GDP. The 'mystery' of Britain's falling productivity is in reality related to the dominance of the finance sector. Globally, productivity increases have tended to slow over the last decade, but in Britain official productivity figures have actually fallen markedly! In fact, the collapse of the financial bubble in 2007/8, which had given a falsely rosy picture, revealed the reality that Britain's productivity trails behind other advanced economies. This has long been the case, as British capitalism has tended to rely on cheap labour rather than investing in developing technology. In 2011 output per hour in Britain was 16% below the average for a major industrial economy.

15. Exports are not improving. On the contrary, the latest balance of payments figures reveal the biggest quarterly deficit since the 1980s. As Larry Elliott put it: "The main reason the independent Office for Budget Responsibility is now expecting national output to grow by 1.4% in 2013, rather than the 0.6% predicted in the Budget, is that consumers are spending more. Projections for business investment and exports - the two sectors that were supposed to lead to a rebalancing of the economy - have been cut since the spring." (Guardian, 30 December 2013) The parts of the economy that are now starting to grow are the same ones that drove the last unbalanced boom, in particular financial services.

16. Any idea of rebalancing the economy has been abandoned by the government and the Bank of England in favour of an even greater reliance on finance. Mark Carney, governor of the Bank of England, has argued that: "By 2050, UK banks' assets could exceed nine times GDP, and that is to say nothing of the potentially rapid growth of foreign banking and shadow banking based in London." He continued: "Some would react to this prospect with horror," but "a vibrant financial sector brings substantial benefits." His proposal would put Britain in the same situation as Iceland in 2007, but on a far bigger sale.

17. The government has also attempted to re-inflate Britain's housing bubble in a short-sighted gamble to try to win the general election. This has alarmed big sections of the capitalist class with its recklessness. Nor will it have the same impact as in the last boom. The myth of Thatcher's 'property owning democracy' has died and cannot be resuscitated. Housing today is one of the biggest problems facing working and middle-class people, particularly in London and the South East. House prices already mean that buying a home is out of reach for an entire generation. The average age at which people now buy their first home is 37. An increase in house prices is a poisoned chalice for homeowners when it means that their children and grandchildren are priced out of the market until they die. At the same time the personal indebtedness built up in the last boom remains as a millstone around the necks of millions of working and middle-class people. Personal borrowing, including mortgages, stands at a massive 1.43 trillion. Almost nine million people have serious financial problems because they are unable to cope with the amount of debt they owe. Therefore the increase in house prices is, at this stage, mostly based on a better-off section of the middle class and also by price rises at the very top of the market. One third of houses purchased in the last year were bought for cash; often by foreign investors looking for a safe haven.

18. The short-sightedness of British capitalism is also demonstrated by the government's declaration that it is 'going all out for shale', bribing cash-strapped councils to accept fracking in their areas. In the US the price of gas has decreased dramatically as a result of the 'shale revolution'. However, even if shale was extracted on a similar scale in Britain, it would be unlikely to have a similar effect, given the relative self-sufficiency of the US energy market. Britain would have to pay the global price for shale gas, which the International Energy Agency predicts will rise by 40% by 2020. Moreover, this headlong rush for shale ignores the risks of water contamination and other detrimental effects on the environment that have led France and Germany to ban fracking. At the same time spending on investment in renewable energy went down by over 8% in 2013. The government dreams of a repeat of North Sea oil, but even on the most optimistic scenario fracking would provide a much smaller cushion for British capitalism. Nor would 21st century British capitalism be any more capable of using a short-term 'fracking benefit' to develop the country's economic forces, than was the case in the 1980s. North Sea oil income was not invested in industry but was used to cushion the effects of Thatcher's disastrous policies of mass unemployment.

19. Osborne and the Tories' continuing austerity policies - threatening a further 25 billion worth of cuts - are not simply ideological, although that is clearly an element. They represent the drive by British capitalism to use the economic crisis to dramatically lower the share taken by the working class, including the social wage - if they can, down to pre-war levels. At the same time they hope to partially overcome the long-term problem of capitalism in this epoch: the lack of profitable fields to invest their huge profits. They hope that the privatisation of public services, particularly the NHS and education, will provide new investment opportunities.


[Next]