The crisis moves into a new phase
What follows is an extract from a report on the British situation presented to a meeting of the ICC in Britian in early April this year. It focuses on the real state of the economy, against all the falsehoods heard before, during and after the recent general election.
According to the bourgeoisie, Britain moved out of recession at the end of 2009 with the final quarter seeing growth of 0.4% (revised upwards in March 2010 from the original estimate of 0.1% and the second estimate of 0.3%). The stock market has been rising, house prices are increasing and unemployment has fallen.
The peak to trough fall of 6.2% (from 1st quarter 2008 to 3rd quarter 2009) makes this recession similar to that of the early 1980s and worse than that of the early 1990s. The growth in the fourth quarter of 2009 was largely due to a 0.4% growth in the service sector. Car sales grew by 5.4%, driven upwards by the car scrappage scheme.
The production sector has been the most affected by the recession, registering a peak to trough decline of 13.8% between the fourth quarter in 2007 and the third quarter of 2009. The 0.4% growth in the fourth quarter 2009 was led by the capital goods sector responding to increased demand from abroad and from state infrastructure projects, although the rate of growth is low in comparison to the total decline of 17.1%.
State and private consumption have underpinned the recovery while capital investment and trade have been negative factors, underlining that debt is both the cause and the solution to the present crisis and that the structural problems of the British economy are unchanged. Much has been made of the fact that the increase in the public sector borrowing requirement may not be as massive as first thought but the level of about 12% of GDP or £167bn is still large and on a par with that of Greece. Overall government debt is predicated by the government itself to rise from 54% of GDP this year to 75% by 2014/15.
Inflation has recently begun to rise as the temporary VAT cut ended and fuel prices increased. In January the Consumer Prices Index hit 3.5% and the Retail Prices Index (which includes mortgage repayments) 3.7%.
In March the Government forecast increases in GDP of 1-1.5% this year rising to 3-3.5% in 2011/12 and to 3.25-3.75 the year after. Other forecasters are not so sanguine: "However, the pick-up will be slow with GDP projected to grow by slightly more than 1% in 2010 reflecting strong headwinds from balance sheet adjustments, a still weakening labour market and fiscal tightening. In 2011 the recovery will gain momentum, but resource utilisation will remain low and the unemployment rate is projected to reach 9.5%. Inflation is likely to remain below the 2% target for an extended period."
The immediate apparent improvement is the result of state intervention, the main elements of which were:
- cuts in interest rates to 0.5%. Many banks have kept the rates they charge for borrowing high, so making vast amounts of money and limiting the impact on the economy;
- nationalisations and bail outs, including Northern Rock, Bradford and Bingley and the Lloyds/HBOS merger as well as the billions of pounds in guarantees given to banks;
- quantitative easing - reached a total of £200bn but rather than stimulating the economy through loans to small businesses it has been argued that this money has simply been used to resume gambling on the stock exchange and explains the increases in the stock market;
- the VAT cut and car scrappage scheme are seen as contributing significantly to the increase in GDP at end of 2009 - both have now ended.
Fig. 1 - GDP Growth
Source: Office for National Statistics
In previous reports we have looked at the range of structural issues that affect the British economy. In particular we noted the relatively low level of productivity and the consequence that the bourgeoisie relied on increasing the absolute rate of exploitation as the basis of the ‘boom' of the 1990s. The latest official report on productivity shows that the productivity gap with rivals such as the US, France and Germany has been reduced but still remains and that one of the factors in this in the lack of investment in research and development and skills.
But such structural issues, which also include the deficit in Britain's balance of trade, are actually only symptoms of the real contradictions at the heart of capitalism: the falling rate of profit and overproduction. When British capitalism moved from manufacture into finances it did so in order to be able to grab as much surplus value as possible. The same necessity has driven production to ever-cheaper locations, financial capital to ever more complex structures and fuelled repeated bouts of speculation. Has the present crisis changed any of this?
There has certainly been a massive destruction of capital and we can see signs of further concentration in car making and the finance sector and it is probable that this will continue in these and other sectors. Is this likely to be sufficient to alter the organic composition of capital and allow an improvement in the rate of profit?
This might improve the competitiveness of certain industries, but, from the Luxemburgist position, the question would be posed of where the demand would come from. Accepting that debt has been used to create an artificial market and that the massive extension and increasing fragility of this market (such as the sub-prime loans) was in large part behind the crisis, what is the perspective of debt fuelling a recovery since it has been massively increased just to prevent the whole edifice from collapsing? In Britain government debt has quadrupled in the last three to four years and personal debt hit an unprecedented high level just before the crisis broke into the open. Today the state is planning a decade of austerity to control the government debt and personal debt, which largely fuelled the boom of the 1990s, is no longer increasing as people, by choice or otherwise, reduce their spending (although the debt remains at £1,464bn).
In short, the fundamental contradictions remain. At best they have been controlled for a moment only to return with renewed force in the future. That said, capitalism is not finished and while it survives it must find some way to grow. Growth figures around the world are turning positive, global forecasts are being revised upwards and the infernal machine lurches forward.
More immediately, it is clear that the crisis in Britain has moved into a new phase, the emergency measures that dominated in 2008-9 have been able to head off the collapse of the finance sector that was feared. The recovery may be weak but, for the time being at least, the bourgeoisie has saved its own skin. Now it is time for the working class to pay the price.
The impact of the recession on the working class
Unemployment has been growing since the middle of 2008 but has recently shown a slight reduction: "The unemployment rate fell by 0.1 per cent on the quarter to reach 7.8 per cent for the three months to January 2010. This was the first quarterly fall in the unemployment rate since the three months to May 2008. The number of unemployed people fell by 33,000 over the quarter to reach 2.45 million. There has not been a larger quarterly fall in the number of unemployed people since the three months to July 2007. However, the number of people unemployed for more than 12 months increased by 61,000 over the quarter to reach 687,000, the highest figure since the three months to August 1997."
The government has boasted about how unemployment has not increased as much in this country as in others, presenting this as a tribute to its economic skill and human compassion. In fact it is partly due to fiddling the figures and partly to the working class accepting cuts in hours and cuts or freezes in pay as the price of hanging onto a job.
The changes to the way unemployment statistics are calculated are familiar to us. One phenomenon of this recession is the role that education has played. Of the 241,000 increase in the number of working age people recorded as inactive, 217,000 were accounted for by young people going to higher education - a route that is likely to become much harder in the face the massive cuts recently announced in funding.
There was a reduction of 2.9% in total hours worked in 2008 (although this includes the impact of the increase in unemployment). Full time employment has declined while part time working has increased (between the end of 2007 and the end of 2008 full time employment declined by 0.5%, or 100,000 people, while part time work increased by 0.8% or 83,000 people). The rate of increase of wages declined from over 3.5% in January 2007 to 3% in March 2009. This decline was most marked in manufacturing where the rate of increase went from just over 3.5% in January 2007 to just over 1% in March 2009. Taking account of inflation real pay has gone down and at the end of March it was reported that average pay declined by 0.5% during 2009.
This is only a continuation of what the working class has experienced over the last thirty years. For example real earnings growth has been kept low over the last two decades and the increase in unit wage costs forced down to nearly zero. This ‘flexibility' of the labour market, so beloved by politicians of all stamps, and presented now as one of the country's strengths, is nothing but a euphemism for the erosion of pay and conditions and the growth of insecurity of employment that was the main fruit of the attacks under Thatcher and her successors in New Labour. This legacy is still with the working class; it is experienced every day in work and is expressed through the tensions and stresses that dominate so many working lives. It is the experience of the working class worldwide.
An indication of the real cost of this flexibility was provided in a recent study of the impact of the recession on mental health. This found that 71% of people who have lost a job in the past year have experienced symptoms of depression, with those aged 18-30 most affected. Around half said they have experienced stress or anxiety.
The attacks on the working class will continue and will be both material and ideological.
The full extent of the material attacks is being hidden until after the election. Today there is a phoney war as the parties posture about who will cut the quickest, the furthest or the cleverest, all the while preserving ‘frontline' services. Labour alternately claims the mantle of Thatcher, promising to outdo her cuts, and tries to frighten workers with her memory. The Tories veer between soft cop and hard cop, promising to start cutting immediately while protecting the NHS. The Liberals for their part posture as the sternest and most realistic of cutters, safe in the knowledge they won't actually have to do anything. The forecasts, by such as the IFS, talk of a decade of austerity with annual cuts twice those under Thatcher.
The scale of these attacks will necessitate an equally large ideological offensive, especially as it will not be possible to hide the disparity between the resources devoted to bailing out the ruling class with the attacks on the working class. There is a danger that this will have an impact on the consciousness of the working class; hence the current strategy of blaming the bankers, while actually doing nothing. The nationalist and racist card will certainly continue to be played with the likes of UKIP, the BNP and the English Defence League tacitly being allowed to develop with the mainstream media drip-feeding more or less explicitly racist stories. The advance of decomposition that is likely to result from cuts will give scope for many campaigns that are likely to be more virulent than those seen to date about delinquent children, single mothers, benefits scroungers etc. WR 4/4/10
. Most of the data in this section is taken from the Economic and Labour Market Review for March 2009 published by ONS.
. Prices dropped from the second half of 2007 until March 2009 and have risen since then (albeit with a dip in February) bringing prices back to where they were in August 2008 and making up a substantial amount of the overall decline. The current inflation rate for house prices is 9%. However, the context of this is of a relatively low level of overall sales with a significant decline in the number of houses being built, suggesting that the current increase in prices may be the result of a tightening of supply. (Source: Nationwide House Price Index, March 2010)
. In the year to February 2010 public sector net investment was £37.2bn, which is 27% higher than for the same period of 2008/9. (Source: IFS Public Finance Bulletin, March 2010).
. OECD Economic Outlook 86, November 2009. The forecasts for GDP are broadly consistent with those of a range of independent forecasters of 1.2% in 2010 and 2% in 2011 (see Forecast for the UK Economy, HM Treasury, March 2010).
. Productivity in the UK 7 - Securing long-term prosperity, HM Treasury 2007.
. It has been reported that economists have worked out the total of lost production for the world economy is $60tn and for the UK £1.8tn, "more than the current annual output of the economy". The article did not cite the source of this calculation. Guardian 01/04/10.
. Credit Action, Debt facts and figures, April 2010
. ONS 17/03/10
. The Impact of the Recession on the Labour Market, ONS May 2009.
. Guardian 30/03/10
. Guardian 01/04/10