British economy – not really that healthy

What we think

British economy – not really that healthy

NEW LABOUR hoped its reputation for ‘economic competence’ would be the
touchstone of the election. Gordon Brown was specifically brought back into
the election team to emphasise the point. But the farce and tragedy of Rover’s
collapse could shatter all that.

The Rover crisis reveals just one of many hidden economic dangers lurking
under the rocks and its demise could bring Labour’s handling of the economy
centre stage.

Rover is symptomatic of a longer-term organic crisis of British capitalism,
with a continued decline in its manufacturing base and an increasing
deindustrialisation.

This decline has been masked for over a decade by generalised world
economic growth and the expansion of the service industry on the back of this,
financed by a massive expansion of credit. Over £1 trillion (a thousand,
thousand million) of consumer debt exists in Britain – equivalent to one
year’s Gross Domestic Product.

Although Blair promised to keep Brown as Chancellor post-election, Brown
himself may soon view it as a poisoned chalice.

Brown claims to have presided over the longest upturn in economic growth
for centuries but the reality behind his selective use of statistics is less
vibrant.

The housing market is slowing down – mortgage lending dropped 30% in six
months. Consumer spending is dropping – car sales are 15% down in the first
quarter of 2005 – as consumers try to reduce their debt.

Any boost to the economy from public spending is likely to contract whoever
wins the election – as all parties have promised to cut the rate of growth in
public expenditure.

Steve Andrew, chief economist at fund managers F&C predicted to The
Observer that "things are going to slow down… you’re looking at a pretty
sluggish environment in the medium term."

And this ‘sluggish’ prospect does not account for a marked downturn in the
US and world economy or the long-term impact of higher oil prices.

Exploitation

YET, THE normally sober Financial Times proclaimed: "Rover is dead. Long
live British manufacturing", proclaiming things were looking optimistic for
British industry.

They claim that although manufacturing employment has halved in Britain in
the last 25 years down to 3.2 million, productivity increases means output is
almost 30% higher than in 1980, with output in the car industry doubling in
two decades.

But this has come about through increased exploitation of the workforce,
changes in statistical methods and does not show the two-tier effect in
British manufacturing, where some sectors are slowly expanding while others
are a disaster. Since 1997 British manufacturing has shed one million jobs.

Manufacturing has fallen to pre-2001 levels and output fell by 0.5% between
January and February. Last month the manufacturing index stood at 98.8. At the
2001 election it stood at 99.8 and in May 1997 it was 97.2. Hardly the signs
of a booming economy! Total manufacturing output has risen just 1.6% in the
past eight years.

The relatively ‘healthier’ manufacturing sectors are generally where inward
investment from multinational companies has taken advantage of cheaper labour
costs and less restrictive labour laws.

But, once a recession bites companies such as Nissan, Toyota and Honda in
the car industry would brutally shed their British workforce first. At the
same time, the service sector is vicious in its shedding of labour at the
first signs of downturn.

If there are any big shocks in the world economy over the next month – not
impossible – then Labour could face their own Black Wednesday.

But, whatever happens short term, big convulsions in the world economy are
inevitable down the line, given the huge speculation and leverage in the
world’s financial markets.

This would lead to a massive jobs shake out and leave any incoming
government with the equivalent of Longbridge disasters the length and breadth
of the country.