In comparison to the economies of countries like France and Germany the British economy is supposed to be doing spectacularly well under the prudent direction of Gordon Brown. Inflation is ‘under control’, there’s ‘full employment’, low interest rates and, most recently, high levels of foreign investment, as well as the rest of the litany of claims that Labour always trots out.
The Brownian miracle is now coming swiftly to an end. This is not because of economic mismanagement (as the Tories claim) but as one national expression of an underlying international economic crisis that affects every part of the world economy. The basic reality of the declining British economy is coming back to the surface: rising inflation, rising unemployment and slowing growth. In fact, beyond the appearances so carefully crafted by the bourgeoisie, nothing has changed. And now even surface appearances are looking grim for capitalism.
The housing crisis
For the last few years, one of the most important factors giving rise to the sense of ‘economic prosperity’ has been inflation in the housing market. Housing costs are not counted in every measure of inflation, so it has been possible for the rate of inflation in the cost of homes to be 20% a year or more, without that affecting the official rate of inflation. The reason that the bourgeoisie has encouraged this phenomenon is that it has created a sense of increasing wealth for homeowners, which in Britain is an exceptionally high, and still increasing, proportion of households.
This has provided the basis for a consumer driven stimulus to the economy. But, no real wealth is actually created by the process of inflation – the real value of homes has remained exactly the same. All that this process has given rise to is an increasing indebtedness on the part of consumers, alongside the appearance of wealth with rising property prices.
The Governor of the Bank of England maintains that only a fool would predict what is going to happen to house prices. This may be true, but we can at least predict that they will go up, stay the same or go down. All these possibilities are catastrophic. If the prices remain more or less constant then it implies stagnation in the market, as we have now. If the prices fall radically then many people – very many indeed – will be ruined because they have bought into the illusion that inflation in the housing market creates wealth. If the prices go up again then the situation we have now will simply be re-created in due course, but at a higher level of prices – and that would be more dangerous still. There is evidence that the housing market bubble is coming to an end.
“British net housing wealth has declined for the first time in a decade because of rising mortgage debt and falling house prices, according to an analysis by the Financial Times.
The net wealth tied up in British homes dropped by more than £60 billion in the second quarter. This was because falling house prices wiped close to £40 billion off the value of the housing stock and total mortgage debt rose by over £20 billion. The last time net housing wealth fell was in the fourth quarter of 1995.” (Financial Times, 20/8/5)
The impact on the economy as a whole is not lost on the bourgeoisie:
“Prof John Muellbauer of Nuffield College, Oxford, says a decline in housing wealth is already slowing the economy: ‘The decline in the growth rate of consumer expenditure is exactly what I would have expected and it has got further to run.’” (ibid)
The bourgeoisie’s attempt at stimulating the economy
The crisis over house prices is very serious in itself, but it is by no means the only cloud on the horizon for the bourgeoisie. In response to the slow down in consumer expenditure, the Bank of England put down the interest rate by 0.25 per cent in August, in order to stimulate the economy. It had been widely expected that it would do just that, and it would be just the first step in reducing the interest rate. But the inflation figures produced since then show inflation increasing to an extent that the Bank will be very constrained in making further reductions. Even if the increase in the official rate of inflation is not dramatic, the combination of increasing inflation and slowing growth is a very serious problem that the bourgeoisie has not had to face for over a decade.
The Monetary Policy Committee of the Bank of England has the responsibility for setting interest rates. If they want to stimulate the economy they put the interest rate down, and if they want to choke off inflation they put it up (earlier in this year, for instance, they put it up to choke off further inflation in the housing market which they rightly regarded as extremely dangerous and de-stabilising). In September they left the interest rate as it was, because they could not decide whether the danger from inflation or the danger from declining growth was the more threatening.
The bourgeoisie like to blame the pension crisis (which exists in every country) on the problem of demographics: people live longer and the ratio of idle older people to productive young people is getting worse. There is no reason to deny that these problems do indeed accentuate the problem facing the bourgeoisie on the level of pensions. However, a recent report that deals with the question of demographics very seriously, underlines their importance and also shows that they are not the actual source of the problem. This report shows that the fact that people are living longer has not been factored in to the calculations of the deficits of company pension schemes, so that all the figures produced so far represent an underestimation of the problem.
“A British man born in 1950 will live, on average, to just two months short of his 90th birthday, with far reaching implications for pensions and the definition of old age, according to data released yesterday.
The figures from the Continuous Mortality Investigations Bureau should have a broad impact on company pension schemes that are already struggling with large funding deficits.
Most corporate pension schemes base their liability estimates on outdated projections for longevity.”
Since pensions have to be funded from future production the collapse of pension schemes simply reflects the bourgeoisie’s estimate of their own future. Since the future is bleak so is the outlook for pensions. This, no doubt combined with the issues of increasing longevity and demographics, is the reason for the collapse in annuity rates. An annuity is what is purchased at the point at which someone retires, if they are in a money purchase pension scheme. It is the amount you are paid until you die. It is what most people refer to as their ‘pension’ – the money they are supposed to live on. Although the precise figures can differ according to which article one is reading in the press, the basic situation is that £100,000 would buy an annuity of £9,000 a decade or so ago, and now will buy an annuity of £4,500.
The bourgeoisie cannot possibly do anything serious about this. This is a deep, structural expression of the crisis of capitalism that cannot be remedied by any means at all. Consequently they are putting forward meaningless ideological campaigns about having to ‘work until you drop’. In fact many older people would no doubt prefer the dignity of working to complete pauperisation. However, the main employers’ organisations have made it very clear that they will not employ older people. On the other hand they do support a rise in the state pension age – to start at 70. What people are supposed to do in between being kicked out of work and starting to receive their pension is not explained.
Economic difficulties experienced by the bourgeoisie in France and Germany has allowed the British bourgeoisie to claim that their economy is an example to all, and that it shows the value of their economic ‘reforms’. In reality the British economy is no better placed than those of Germany or France. The increasingly open manifestations of the crisis show that. These will be very important stimuli to reflection in the working class and, potentially, a spur to the development of workers’ struggles.