The Socialist 6 October 2021 |
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Capitalism's economic instability in the 'new normal'
Volatility in world supply chains
Judy Beishon, Socialist Party executive committee
The recent acute shortages of energy, goods and labour in some sectors in the UK stems in large part from UK-specific capitalist failings. But the volatile world situation is part of the background to those crises, in particular because of the Covid pandemic disruption to supply chains and travel internationally.
Following the sharp economic falls during the lockdowns, rapid rebounds in export volumes and overall economic growth have put great stress on the 'just-in-time' connections in supply chains. This is together with trade and economies still being adversely affected by ongoing post-lockdown pandemic control measures, especially those affecting travel and transport.
The Organisation for Economic Cooperation and Development (OECD) stated in its September 2021 assessment: "Economic growth has picked up this year, helped by strong policy support, the deployment of effective vaccines and the resumption of many economic activities... Global GDP has now surpassed its pre-pandemic level, but output and employment gaps remain in many countries, particularly in emerging-market and developing economies where vaccination rates are low... Sizeable uncertainty remains".
Rises in commodity prices and shipping costs are key factors in the uncertainty and turmoil, and are being reflected in increases in inflation in a number of countries. Extreme weather events also contribute to the uncertainty - there are many recent examples of them impacting on economies and trade, including the disruption of rail, sea and air transport when a typhoon hit China in July 2021.
The growth rate of world trade was already in decline before the pandemic and the post-pandemic outlook doesn't point towards a reversal of that trend. A key factor behind the decline has been the increasing trade protectionism of the US and other countries, including against China. The average US tariff on Chinese imports last year was 19.3% - over six times higher than the average rate in 2017.
Another factor has been firms moving some or all of their production back 'home', whether due to costs, logistics, or other reasons. Also, some corporations have reduced the quantity of product parts they import from other companies abroad, instead sourcing more from within their home country than previously, as many firms in China have done.
The pandemic has only increased the pressures on governments and big business to resort to protectionist measures. This is partly because it has brought out the futility of relying on 'market forces' in a capitalist world to deliver vital products to the places of need.
This protectionism isn't on the whole favourable for the capitalist classes internationally. Ideally, they want the highest possible levels of trade to try to extend their own markets and for the competition generated to be an impetus to investment, productivity and therefore the health of the entire capitalist system. But the insurmountable contradictions in the system - analysed and explained over 170 years ago by Marx and Engels - underlie what is today a system in long-term decline, unable to deliver 'healthy' growth.
None of the problems and fault-lines that led to the 2008-09 recession have since been solved. Among them, debt levels are now greater than ever; an enormous potentially destabilising factor. The present bounce back of many economies can appear superficially as a sign of healthy growth, but it's mainly just an inevitable sequel to the lockdown semi-paralysis of huge sectors. As such, a return to the pre-pandemic cycles of weak growth rates interspersed with recessions - which could be very severe - looms ahead.
Complex supply chains
This doesn't mean that the highly complicated, web-like supply chains - built up particularly in the last decades of the last century - will be coming to an end. Rather, they have been facing changes that limit their expansion, which has contributed to the global slowing of trade in relation to the rate of economic growth.
Multinationals have been reviewing whether they rely too much on suppliers that might become unreliable or otherwise counterproductive. Along with this is pressure to step back somewhat from just-in-time deliveries, as the economic upheavals of 2007-09 and during the pandemic have exposed the dangers for them of keeping stock levels at ultra-low levels at every stage of production.
Journalist Samanth Subramanian gave an example of the complexity of the chains: "A T-shirt sold in New Delhi might be made of cotton grown in India, blended with other cotton from Australia, spun into yarn in Vietnam, woven into cloth in Turkey, sown and cut in Portugal, bought by a Norwegian company and shipped back to India - and that's a relatively simple supply chain".
He outlined a case that took place five years ago: bed linen company Welspun was caught out for labelling much of its product as 100% Egyptian cotton when a large quantity of it hadn't come from Egypt at all. Welspun had bought its cotton from many different companies and had difficulty in identifying where in the chain the fraud had arisen.
Nevertheless, whatever company bosses do to try to improve the reliability of their trading, or in many cases to deliberately obfuscate their sources, they aren't able to end their reliance on workers' labour.
The recent shortages and logistics problems have had the side effect of workers in the affected sectors being in a position of having greater potential power in their trade union struggles for better wages and conditions. Also, during the pandemic the increase in online buying and selling - due to more of it being done from homes - has led to higher numbers of workers being needed in warehouses and delivery jobs, so they have a boost to their negotiating power too.
As well, the pandemic has raised consciousness worldwide on the crucial role played by the working class - that has delivered health care, cleaning, food supplies and all the other basic tasks that have kept society running. Capitalist governments deny those workers a decent wage in most countries, while at the same time they have resorted to spending vast sums of money on 'quantitative easing' programmes to prop up their system and primarily serve the interests of big business.
This adds to the urgency of workers turning to the political front as well as fighting industrially - to the task of building new mass workers' parties that can put forward a socialist alternative to capitalism.
British capitalism's bleak future
Dave Reid, Socialist Party national committee
A leading capitalist think tank has outlined the bleak situation facing British capitalism. And unless society is changed, this means a desperate future for working people.
The Resolution Foundation is a think tank of Blairites and Tories that aims to "Improve outcomes for people on low and modest incomes". It wants to persuade governments to introduce mild reforms that mitigate the worse effects of capitalism, and in doing so hopes to protect the system from the working-class anger that its conditions provoke.
Together with the London School of Economics it has established a two-year 'The Economy 2030 Inquiry', to examine the huge challenges facing the UK economy in the 2020s. Specifically: the recovery from Covid-19, the effects of Brexit, and decarbonisation of the economy, in the context of already existing technological and demographic changes.
Its initial report presents a devastating indictment of British capitalism in the 2020s. The report describes a country more unproductive, lower-paid and more unequal than its rivals, and falling further behind.
Just a few facts show the parlous state of British capitalism:
- The weakest job mobility since the 1930s
- The poorest productivity record for 120 years, causing real wages to stagnate
- Average earnings stalled at the same level in real terms as they were in 2008
- Almost no income growth for low-paid workers for 15 years
- A worse record for inequality than any EU country apart from Bulgaria.
The report correctly criticises the promises of the Johnson government to 'build back better' and 'level up' because neither it, nor the current Labour leadership, has an economic plan for achieving those objectives. In fact, the Financial Times has warned of a "levelling down - with London hit by the continued absence of office workers, Brexit damaging manufacturing areas and the pandemic still ravaging disadvantaged communities".
Nevertheless, this report plays a useful role for the workers' movement by providing a mass of data to describe the dire situation of British capitalism.
British capitalism, which once controlled one quarter of the world's economy, is falling further and further behind its rivals: "On the eve of the [2008-09] financial crisis, GDP per capita in the UK was just 6% lower than in Germany, but after a large downturn and slower recovery this gap had risen to 12% by 2019". This is a warning that Britain could join the emasculated Italian economy at the bottom of the league tables for advanced capitalist nations.
British capital decline
According to the Economist: "Since 2005 British firms' share of world market capitalisation has fallen from over 7% to 3%", British capital has halved in relative value in 15 years.
After decades of Tory and Blairite undiluted neoliberal policies in Britain, Germany and France are about 15% more productive than the UK.
In addition, British capitalism is posed with new problems, the consequences of which the capitalists and their governments will try and unload on to working people. The report lists the following:
- Covid-19: More home working as a result of the pandemic will benefit the top earners, but will make low-paid workers even more insecure.
- Brexit: The Johnson government's Brexit settlement will impose higher costs of doing business with the EU, its main trading partner.
- Net zero: Decarbonisation requires urgent action that capitalism is unlikely to satisfy.
- Demography: The ratio of people under the age of 20 or over 65 to those aged 20-64 is likely to increase even faster than in any other decade in the first half of the 21st century.
- Technology: The OECD estimates that 14% of jobs could disappear as a result of automation in the next 15-20 years.
The concern about automation affecting employment, however, coexists with the reality that, for the UK, the more pressing recent problem has been too little technological investment.
Under capitalism in crisis there is no way that new technology can be introduced while at the same time protecting the jobs and living standards of the working class.
All these challenges could be met by the adoption of socialist policies. But on the basis of the continuation of capitalism, they pose a stark warning to the working class and the trade union movement as the bosses try and make us pay for the crises in their system.
Although the authors of the report do not spell it out, it is absolutely clear from its data that the responsibility for the uncompetitiveness of the British economy lies squarely at the doorstep of its owners - the effete and short-sighted capitalist class. Productivity is growing at its lowest rate since 1900, mainly because investment is low.
Low investment has been the central problem of British capitalism for a century. The capitalist press try and pin the blame for the decline of British manufacturing on 'greedy unions', but decades of underinvestment have meant that British manufacturing companies have not been able to compete with their rivals. In 1978, the Financial Times reported that the average British worker had just £7,500 worth of machinery at their elbow, the German worker £22,000, and the Japanese £30,000. Small wonder, therefore, that in the cold wind of Thatcherism, 39% of manufacturing jobs were blown away between 1979 and 1993.
British capitalists turned instead to making a quick buck in the finance and service sectors, but low investment means that productivity is declining in these sectors too.
And what is left of British manufacturing capitalism today is following on the tradition of its predecessors. As the Foundation reports: "In 2017, the UK had only 71 robots installed per 10,000 manufacturing employees, compared to 309 in Germany and 631 in Korea."
The British ruling class is slowly waking up to the threat to humanity posed by climate change, but its system is incapable of transforming to a zero carbon economy. At the end of June, Tory ex-minister John Gummer said: "Almost all things that should have happened have either been delayed or... haven't hit the mark." The Resolution report authors plead: "We need to move... from installing almost zero heat pumps each year, to installing 3,000 every single day by 2030... 60 per cent of fuel supply (oil and gas industries) and half of surface transport decarbonisation needs to happen during the 2020s - to achieve net zero by 2050."
But currently, the steps in that direction are miniscule and on the basis of capitalism, net zero will never be achieved, let alone by 2050. Annual UK low-carbon investment needs to reach around £50 billion by 2030 but currently stands at £7 billion.
Green new deal
A socialist green new deal could achieve those results before 2050. It would need to renationalise the energy industry under democratic workers' control and management, to use the resources currently extracted as super-profits for the utilities companies and gear production to invest in heat pumps, home insulation, tidal power, electrification and free public transport to lower car use.
As part of a socialist plan, the financial burden of low-carbon transition would not fall on working-class families. The transition under capitalism, where bosses look to increase prices to maintain or boost their profits, will add to energy bills - which eat up 2.5 times as much disposable income of the bottom fifth of households when compared to the top fifth.
Trade unions, with their 6.7 million members and growing in Britain, are the force in society best placed to fight for an economy run in the interests of the workers, not the bosses. But many trade union leaders are tied to the capitalist establishment - declaring a social truce during the first phase of the Covid crisis as many workers' living standards were being shredded.
Frances O'Grady, the general secretary of the Trades Union Congress (TUC), is one of the inquiry members who famously joined with the bosses' union, the Confederation of British Industry (CBI), to endorse the furlough plan of Tory chancellor Rishi Sunak on the steps of Downing Street. Rubbing shoulders with the CBI, Tories and Blairites in this inquiry to try and square the contradictions of capitalism will get us nowhere.
Instead, the trade union leaders should be preparing for the battles to defend workers as the bosses attempt to make us pay for their endemic crises. And the trade unions should be drawing up plans for a new mass workers' party that can fight to avert the irreversible slide into capitalist decay outlined in this report.