British capitalism in crisis

British Perspectives 2018 continued…

27) That is not to suggest, as the capitalist remainers do, that the crisis of British capitalism is caused by Brexit.

Nor is it to suggest that British capitalism would be safer within the EU. On the contrary, it would face the likelihood of new crises within the EU and particularly the Eurozone.

At root the economic crisis stems from the continued global crisis of capitalism added to Britain’s continued decline as a world power.

Britain has not recovered from 2008 and is heading towards a new crisis, which the political uncertainty of Brexit is only exacerbating.

Britain’s decline shows in any number of indicators. Productivity per hour has still not reached its pre-crisis peak, and is lagging further behind the G7 average than at any time since records began! In 2008 nine of the world’s biggest 100 corporations were UK-owned, now the figure is only five.

Meanwhile, the US, despite its decline in many respects, has increased the number of its companies in the top 100, now taking an absolute majority at 55.

28) Britain’s economy remains dominated by the service sector, particularly finance. The finance sector employs over two million workers across Britain.

Of these only a small minority are the international financiers based in and around the Square Mile. Nonetheless, it is true that the London Stock Exchange (LSE) is second only to Wall Street, the only field in which Britain is a first-rate power.

Outside of the EU, the pro-Brexit wing of the Tory Party dream that British capitalism will succeed by becoming even more dominated by finance, little more than a giant hedge fund.

The majority of Britain’s financial capitalists recognise, however, that while the LSE would remain a global player, it would be bound to lose jobs to Paris and Frankfurt.

Close to 100,000 people are employed in asset management alone, for example, a significant section of whom could relocate.

29) The UK economy has long been overwhelmingly driven by consumer spending. This, however, started to slow in the final part of 2017 as low pay combined with price increases hit workers’ pockets.

For those who managed to grasp the bottom rung of the housing ladder, mortgage debt is once again increasing.

The number with mortgage debt more than four times their earnings is the highest since 2013, as is the proportion paying more than 40% of their earnings on the mortgage.

UK house prices are at close to their pre-crisis levels, the only major economy where they have reached such stratospheric levels.

Personal indebtedness goes far beyond mortgages, however. The growth rate in personal loans, credit cards and car finance is more than five times the puny rise in earnings.

Personal debt has risen to levels unseen since the financial crisis, reaching more than £200 billion.

30) At the same time, the growth in employment (albeit on a low paid, insecure basis) appears to have come to an end after official figures showed the number of people in work fell by 56,000 in the three months ending in October 2017.

The CBI do not expect any improvement in 2018: “Persistent cost pressures will ensure inflation remains at a high level, perpetuating the squeeze on household spending, particularly impacting consumer-facing firms and retailers.” GDP growth is predicted to drag along at well under 2%, and this could prove optimistic.

The shock of a hard Brexit, for example, could also potentially lead to a run on sterling, leading to dislocation of the economy, a sharp rise in interest rates, and much steeper price increases than have taken place up until now.

Given the level of indebtedness in Britain this would be an economic disaster for millions. It could trigger the mass repossessions that took place in the US in 2008, but which Britain largely escaped.

31) It is true that the fall in the price of sterling that has taken place so far has allowed exporting manufacturers to make some gains.

Any positive by-products for manufacturing from a further fall in sterling as a result of Brexit would be likely to be wiped out, at least in the short term, by economic dislocation and increased tariffs that would also result.

In any case, the positive consequences of a fall in sterling have been limited for two reasons. Firstly because the UK economy is so reliant on consumer spending that a growth in the puny manufacturing sector (which makes up only about 10% of GDP) has done little to rebalance the overall economy.

And also because manufacturing industry has, with typical short-termism, chosen to increase its cash piles rather than lower prices and fight for a bigger share of the market.

32) This reflects the deep pessimism of the capitalist class for their own system. Yet again profits are soaring but the capitalist class sit on their cash rather than invest it.

The FTSE has reached record levels yet huge amounts of investors’ money is, as the Evening Standard put it, “sitting idly on the sidelines in cash.

“Some estimates put the figure at between $60 trillion and $70 trillion.” Richard Buxton, chief executive of Old Mutual Gold Investors explained: “This is the most hated bull market ever…

People just don’t trust this market. There’s no euphoria and no characteristics of a bubble.” The latter isn’t true.

“Fuelled by years of quantitative easing (QE), the price/earnings ratio is once again climbing as share prices soar further away from the underlying economic reality.

“Nonetheless, the investors’ sense of doom rises from a dim awareness of what is happening and a fear of a repeat of 2007/08.

33) Britain will face a new economic crisis, possibly as severe or even worse than 2007/08, at a certain stage.

Any number of political or economic events could act as the trigger, including but not only Brexit. Even if the crisis is shallower, which would be the best outcome for the working class, the economic, social and above all political consequences will be profound, because they will come on top of all the misery the working and middle classes have suffered over the last decade.

The poorest sections of the working class are suffering terrible hardship. The introduction of Universal Credit is a brutal attack on many including the jobless, the disabled and the growing army of so-called self-employed and low-paid workers on benefits.

The method of administration is also a direct cause of evictions and has some very negative consequences for women, especially victims of domestic abuse.

The main consequence of the general, prolonged driving down of living conditions, is likely to be a profound radicalisation, with much wider layers of the working class drawing socialist conclusions.

If, of course, the trigger for a new crisis is related to Brexit, this could be a certain complicating and divisive factor.

Our role in that situation would be to point out the fundamental reasons for the crisis and the need for a united struggle against its consequences.

British Perspectives 2018 contents page