Fragility of the British ‘recovery’
The British economy is growing. The latest GDP growth was 2.9% with a predicted growth of 2.4% for 2015 (The Economist, 4.7.15). At the same time average pay has increased faster than inflation in the year to March, in other words the fall in real wages has been halted. However, this does not tell the whole story and the economy in both the UK and the world, despite having emerged from the deep recession of 2008, remains fragile.
“Productivity isn’t everything, but in the long run it is almost everything”. Britain has become a low productivity economy, with output per worker per hour lagging behind Italy and Canada, and way behind France, Germany and the USA. A US worker can do in 3 weeks what will take a worker in the UK a month. It was improving at approximately 1.75% a year, or slightly faster than the rest of the group of 7 countries, until the start of the recession in 2007, since when productivity has stagnated in Britain although not in the other advanced countries, widening the gap. The loss of the improvement in productivity has been across the spectrum of economic activity particularly in manufacturing, but not excluding services. These sectors have seen either a very significant fall in productivity improvement, or a loss of productivity, since then. The Office for National Statistics (ONS) has noted a 0.3% increase in hourly productivity in the first quarter of this year, or 1.3% in the year to the end of March.
Whether or not this improvement is sustained, 8 years of stagnation has left productivity approximately 16% lower than it would have been if it had continued improving at the previous rate. This does not mean workers would be an average of £5,000 better off if productivity had continued to grow as before – it was the recession that caused the stagnation in productivity because capital could no longer produce and sell so many products or services profitably. In fact some employers kept workers on through the recession, often at reduced pay, in the expectation of future growth so that unemployment did not rise so fast or so high as in previous recessions, which contributed to the initial fall in productivity at the start of the recession. This was accompanied by the cut in investment during the recession, leaving workers using fewer and more out of date machines.
Low productivity in Britain is also a long term problem that dates back to the start of the open crisis of capitalism at the end of the post World War 2 boom nearly 50 years ago. “Prof Haskel [of Imperial College] admits it is impossible to pin point one factor to explain why the economy has all of sudden become less efficient. Instead, he makes several conjectures. One is the slowdown in the amount of research and development undertaken by companies and the state since the 1970s compared with the immediate postwar period. As R&D’s affect on productivity has a long lag, what happened forty years ago may help to explain the productivity problem Britain faces today.”
Productivity is a problem for British national capital. It is something of an interminable mantra imposed in the public sector, in the NHS and in our schools, and predicted to be an important concern in the budget. It makes it harder to complete internationally. And it is driving down wages. There are dangers for the ruling class in imposing conditions of low pay, poor working conditions on a working class with strong traditions of struggle for too long – even while politicians of left and right have had some success with blaming these conditions, and unemployment, poor housing, etc. on immigration.
Fragility in the global economy
British national capital relies on its international trade for its survival and therefore on the health of the world economy. “In 2015, the IMF says, for the first time since 2007 every advanced economy will expand” (The Economist, 13.6.15) but hazards remain such as Greek debt and China’s shaky markets and slowing growth, as well as the Brazilian and Russian economies likely to shrink this year. “The danger is that, having used up their arsenal, governments and central banks will not have the ammunition to fight the next recession”. It’s not that The Economist is predicting a recession on the horizon, but that they tend to come along regularly in capitalism and there are all sorts of fragilities in the world economy. Including Europe’s debt and dependence on exports. The EU is Britain’s most important partner accounting for approximately 50% of its trade in goods (imports and exports) and a substantial proportion of its trade in services. While any particular business may have a greater or lesser interest in the EU, the UK cannot grow indefinitely while the Euro area lags behind, with only 1% growth according to the latest figures and 1.5% predicted for this year.
What The Economist is most concerned about is the ability of the various economies to respond to a new crisis by increasing borrowing, manipulating the Government budget balance and interest rates. After the debt accumulated since 2007 and the exceptionally low interest rates – for instance in Britain Bank Base Rate never fell below 2% until 2007, and is now at 0.5% – you can see their concern. But when base rate is close to zero “Central banks’ capacity to conduct QE [quantitative easing] is theoretically limitless … markets will tolerate much more QE than economists had thought” (The Economist, 13.6.15). Lenders remain confident that the British government can repay loans despite a £1.5 trillion debt equal to 80% of GDP.
While average pay has gone up a little higher than inflation after several years of falling real wages, some of the poorest have done very badly such as care escorts averaging £7,400 with a loss of 3.3% or retail check out staff on around £9,160 down 3.4%. The income gap has only widened as the working class is made to pay for the crisis.
The government response is to continue to impose more attacks on the working class (see page 2) with cuts and restrictions in budgets for social services, schools and health and particularly on benefits. These measures, like the restrictions on immigration, are also being used to paint sections of the population as scapegoats for the problems in the economy. This is particularly the case for the attacks on working age benefits for those in work, out of work or unable to work.
What is the meaning of the fragility of the recovery?
Any attempt to follow the evolution of the economy naturally uses the statistics produced by the bourgeoisie for its own purposes: to help manage state policy to defend the national capital, to provide information for capitalists trying to make profitable decisions whether the economy is doing well or badly. On the other hand we are trying to follow the evolution of a decadent system, one in which the exploitative relations of production are in conflict with the forces of production, and most importantly the working class. It is not just a question of the fall in production with each recession – capitalism has always experienced that even when it was vigorously expanding across the globe – but also the fragile and anaemic recoveries or the various bubbles that follow in which the productive forces continue to be hindered. And all the while it is doing so in ways that damage both the environment and the health of the population and the working class in particular through pollution.
. Paul Krugman, Nobel Prize winning economist quoted http://www.ft.com/cms/s/0/41be9e38-e521-11e4-bb4b-00144feab7de.html#axzz3epzhkdtH
. In this article we are taking the statistics produced by the bourgeoisie at face value. However productivity is a complex problem that goes back to the 19th century and one we will need to come back to in future articles.