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.